COMPLIANCE THEORY

1. TOPIC:
COMPLIANCE THEORY
PRESENTED BY:
NADIA ABDULLAH

2. Overview
I. Organizational Structure
II. Compliance Background
III.Elements of an Effective Compliance
Program
IV.Tool Kit
I. Reference Materials

3. Organizational Structure

4. What is an Organization?
An organized group of people with a
particular purpose, such as a business or
government department.

5. The term organization, in the management
terminology is used in two different senses.
They are:
• Organization as a process
It is the process by which the Manager, as a
leader, assembles his men, delegates authority,
fixes the responsibility and gets the work done.
• Organization as a structure
A group of individuals who are working
together towards a common goal. In other
words, it refers to the structure of relationship
among positions and jobs which is built up for
the attainment of the common objectives.

6. STRUCTURE
The arrangement of and relations between
the parts or elements of something complex.

7. Organizational Structure
• An organizational structure defines how activities such
as task allocation, coordination and supervision are
directed toward the achievement of organizational aims.
It can also be considered as the viewing glass or
perspective through which individuals see their
organization and its environment.

8. Compliance Background

9. What is Compliance?
Compliance is a comprehensive program that
helps institutions and their employees conduct
operations and activities ethically; with the
highest level of integrity, and in compliance
with legal and regulatory requirements.
Who is in charge?
• Chief Compliance Officer (CCO), Chief
Operations Officer (COO)

10. Why Have Organizational
Compliance and ERM programs?
• Compliance Programs
– Fiduciary Responsibility
– Federal Financial Reporting and Internal Control
Standards
– Legal and Regulatory requirements and
organizational policies
• Enterprise Risk Management Programs
– Standard & Poor’s- Credit Ratings

11. Compliance Theory refers to the complex set
of processes, rules, tools and systems used by
corporate legal departments to adopt,
implement and monitor an integrated
approach to business problems.
COMPLAINCE THEORY

12. • Etzioni(1975, 1997) developed an
innovative approach to the structure of
organizations that he calls compliance
theory. He classifies organizations by the
type of power they use to direct the behavior
of their members and the type of
involvement of the participants.

13. Types of Organizational Power
• Etzioni identifies three types of organizational
power: Coercive, Utilitarian, and normative, and
relates these to three types of involvement:
alienative, calculative, and moral.
Fig 1. Etzioni’s Compiance Types
Types
Of
Involvement
Types of Power
Alienative X
Calculative X
Moral X

14. TYPES OF POWER

15. Coercive Power
• Coercive power uses force and fear to
control lower-level participants.
Examples:
 Prisons
 Custodial mental hospital
 Basic training in military

16. Utilitarian Power
• Utilitarian power uses remuneration or
extrinsic rewards to control lower-level
participants. Most business firms emphasize
such extrinsic reward. These rewards include
salary, merit pay, fringe benefits, working
conditions, and job security. Besides many
business firms, utilitarian organization
include unions, farmers’ co-ops, and various
government agencies.

17. Normative Power
• Normative Power controls through allocation of
intrinsic rewards, such as interesting work,
identification with goals, and making a
contribution to society. Example of such
organizations are churches, political
organization, hospitals, universities, and
professional association (such as the American
Association of School Administrators, National
Association of Elementary School Principals,
National Association of Secondary School
Principals. and National Education
Association).

18. TYPES OF INVOLVEMENT
All three types of power can be useful in
obtaining subordinates’ cooperation in
organizations. However, the relative
effectiveness of each approach depends on
the organizational participant’s involvement.
(Lunenburg & Ornstein, 2012).

19. Alienative Involvement
• Alienative involvement designates an
intense, negative orientation. Inmates in
prisons, patients in custodial mental
hospitals, and enlisted personnel in basic
training all tend to be alienated from their
respective organizations. However, in the
case of military personnel undergoing basic
training, the ultimate goal is adherence to
the organization’s values. (Champoux,
2011)

20. Calculative Involvement
• Calculative involvement designates
either a negative or a positive orientation
of low intensity. Calculative orientations
are predominant in relationships of
merchants who have permanent
customers in various types of business
association.

21. MORAL INVOLVEMENT
• Moral involvement designates a positive
orientation of highly intensity. The
involvement of the parishioner in her church
of synagogue, the devoted member of his
political party, and the loyal follower of her
leader are all moral.

22. Business Reasons For
Developing Compliance Programs
• Foster a culture of ethics and compliance that is
central to all of the institution’s operations and
activities.
• Understand the nature of risks and potential
exposures.
• Identify and manage risks that impact the
institution’s reputation.
• Integrate the compliance program into ERM
Framework

23. HIGHER ED.
INSTITUTION
BOARD OF
TRUSTEES/REGENTS
DONORS
ANALYSTS
ACCREDITORS &
AUDITORS
Seeking enhanced visibility
into the risks of the
institution
Instituting ERM ratings
criteria for public debt
issuers
Seeking assurance on stewardship
of donated funds
Promoting greater accountability
for risk management
Why Are Compliance Programs Important?

24. What are the five key functions
of a Compliance Department?
• To identify the risks that an organisation faces and advise
on them (identification)
• To design and implement controls to protect an
organisation from those risks (prevention)
• To monitor and report on the effectiveness of those
controls in the management of an organisations exposure
to risks (monitoring and detection)
• To resolve compliance difficulties as they occur
(resolution)
• To advise the business on rules and controls (advisory)

25. What duty, objective and
responsibility does a Compliance
Officer fulfill? DUTY - The Compliance Officer has a duty to his
employer to work with management and staff to
identify and manage regulatory risk.
 OBJECTIVE - the overriding objectives of a
compliance officer should be to ensure that an
organization has systems of internal control that
adequately measure and manage the risks that it faces.
 RESPONSIBILITY - The general responsibility of
the Compliance Officer is to provide an in-house
compliance service that effectively supports business
areas in their duty to comply with relevant laws and
regulations and internal procedures.

26. Factors Affecting Organizational
Context for Compliance
• Board and Audit Committee
o Independent and engaged?
• Management’s Philosophy and Operating Style
o Communicates by word and action there is support for
compliance and commitment to ethics
o Code of Conduct
o HR Practices and Policies: Recruitment and hiring; orientation;
evaluation, promotion and compensation; disciplinary actions
• Organizational Structure
o Centralized vs. Decentralized
o Assignment of Authority and Responsibility
• Risk Culture (Appetite and Tolerance)

27. CONCLUSION
• Compliance theory is an approach to
organizational structure that integrates several
ideas from the classical and participatory
management models. According to Compliance
theory, organization can be classified by the type
of power they use to direct the behavior of their
members and the type of involvement of the
participants. In most organizations, types of
power and involvement are related in three
predictable combinations:

28. • Coercive-Alienative, Utilitarian-Calculative, and
Normative-Moral. Of course, a few
organizations combine two or even all three
types. For instance, some teachers’ unions use
both utilitarian and normative power to gain
compliance from their members. Nevertheless,
school officials who attempt to use types of
power that are not appropriate for the
environment can reduce organizational
effectiveness. School tend to be normative
organizations. According to this logic,
oppressive use of coercive and utilitarian power
with teachers and students can be dysfunctional.

29. Practical Tools and References
---
Compliance Background

30. Associations with Reference Materials
– NACUA: http://www.nacua.org/
– Society for Corporate Compliance and Ethics
http://www.corporatecompliance.org
– Association of Corporate Counsel:
http://www.acc.com/
– ECOA : http://www.theecoa.org
– NACUBO: http://www.nacubo.org/
– https://www.pwc.com/us/en/
Publications
– Ethikos Magazine:
http://www.singerpubs.com/ethikos/
– Ethisphere Magazine:
http://ethisphere.com/?gclid=CMbC7siNtZ0CFdVL5Qodny

31. BOOK RECOMMENDATION

32. Elements of an
Effective Compliance Program

33. To have an effective compliance program,
an organization must establish and maintain
an organizational culture that “encourages
ethical conduct and a commitment to
compliance with the law.”
U.S. Federal Sentencing Guidelines
§8B2.1(a)(2)

34. Eight Elements of an Effective
Compliance Program:
1. High level company personnel who exercise
effective oversight and have direct reporting
authority to the governing body or appropriate
subgroup (e.g. Audit Committee);
2. Written policies and procedures;
3. Training and education
4. Lines of communication

35. 5. Standards enforced through well-publicized
disciplinary guidelines
6. Internal compliance monitoring
7. Response to detected offenses (including
remediation of harm caused by criminal
conduct) and corrective action plans (including
assessment and modification of the compliance
and ethics program); and
8. Periodic Risk Assessments
Eight Elements of an Effective
Compliance Program, Cont’d

36. Suggested Readings on Ethics
• Paine, Lynn Sharpe: Managing for Organizational Integrity, Harvard
Business Review (March-April 1994)
• Weaver, Trevino, Compliance and Values Oriented Ethics Programs:
Influences on Employees’ Attitudes and Behavior, Business Ethics
Quarterly (April 1999)
• Joseph, Integrating Ethics and Compliance Programs: Next Steps for
Successful Implementation and Change, Ethics Resource Center (2001)
• Ethics Resource Center, Leading Corporate Integrity: Defining the
Role of the Chief Ethics & Compliance Officer (CECO), (2008)
• Tyler, Dienhart, Thomas, The Ethical Commitment to Compliance:
Building Value-based Cultures That Encourage Ethical Conduct and a
Commitment to Compliance, California Management Review (February
2008)
• Roach, Davis, Establishing a Culture of Ethics and Integrity in
Government, Ethikos (September-October 2007)(Toolkit)

37. Compliance Communications

38. Compliance Communications
More Elements:
• Written Policies and Procedures
• Training and Education
• Lines of Communication
o Hotlines and Whistleblowers
• Standards enforced through well-publicized
disciplinary guidelines
o Codes of Conduct

39. Written Policies and Procedures
• Explain legal requirements so that employees
understand their obligations and how to
conform their behavior to meet them;
• Encourage managers and employees to
report suspected fraud and other
improprieties without fear of retaliation, and
• Should be made easily available (e.g. policy
webpage)

40. • Reasonable and practical steps must be
taken to disseminate information about the
organization’s compliance program and its
policies and processes.
• Training should be provided to the
governing body, high level executives,
employees and, where appropriate, the
organization’s agents. (May be required by
law, e.g. Medicaid, Human Subjects
Research).
Training and Education

41. Lines of Communication
• The FSG state that to enhance the effectiveness
of the compliance program, the program must
establish lines of communication whereby:
– Employees and agents may seek guidance
and report concerns, including the
opportunity to report anonymously
– There are assurances that there will be no
retaliation for good faith reporting;
– Sometimes required by statute, e.g.
Medicare/Medicaid.

42. Publicized Standards and Discipline
• The Code of Ethical Conduct is the centerpiece of an
effective compliance program
• Topics and Organization:
– Leadership Statement
– Inspirational provisions such as mission statement,
guiding ethical principles, values statement
– Explains who is covered
– Standards of conduct
– Discipline and enforcement
– Reporting (obligations), whistleblower, non-
retaliation

43. Publicized Standards and Discipline, Cont’d
•Code of Ethical Conduct Style:
– Audience/Culture
– Q and As and Resources
– Acknowledgment of Receipt?
– Publicly available?

44. Practical Tools to Support
Your Program
- - -
Compliance Communication

47. Tool Kit
• Communication Plan
• Policy on University Policy Development
• Compliance Complaint Policy
References
http://www.acupa.org/resources.html
https://www.tcsedsystem.edu/expertise/
https://www.shu.edu/#
A good website for film clips, cartoons and good training
ideas, as well as regular compliance updates:
http://www.compliancebuilding.com/
• Codes of Conduct:
Ethisphere Magazine for Codes of Ethical Conduct
http://ethisphere.com/?gclid=CMbC7siNtZ0CFdVL5QodnytqiQ

48. How Smaller Institutions Can
Build Effective Compliance
Programs

49. How Smaller Institutions Can Build
Effective Compliance Programs
• You must have buy in from the top
• Establish Compliance/ERM as a
component of institutional strategic plan
• Vetted and accepted by Board of
Regents/Trustees and Executive Cabinet
• Establish risk ownership and management of
risk

50. Develop a Compliance Program Model
• REGULATORY STANDARDS:
o Federal Sentencing Guidelines - Section
8B2.1(b)(7)(A)
• GUIDELINES & BEST PRACTICES:
o Committee of Sponsoring Organizations of the
Treadway Commission’s (COSO) ERM
Framework
o Standard & Poor's (S&P) ERM Ratings Criteria
for Non-Financial Organizations
o ISO31000
• EMERGING REGULATIONS & GUIDELINES:
o Accreditation requirements

51. Seton Hall University’s Proposed ERM And
Compliance Model
FIVE STEP PROCESS FOR ERM
Identify EvaluateAssess Mitigate Monitor
SETON HALL’S ERM AND COMPLIANCE MODEL
1
FIVE TYPES OF RISKS
Strategic FinancialOperational Compliance Reputational
2. 3. 4. 5.1.
FIVE DIVISIONAL AREAS
Finance
& Technology
Student
Affairs
Academic Affairs
General
Counsel
University
Advancement

52. Develop An Institutional Compliance
Calendar
• Create universal template
• Divisions input statutes and regulatory
compliance
• University wide inventory of dates for
compliance

53. Division of Student Affairs
Enterprise Risk Management Plan
Compliance Calendar
GOVERNING AUTHORITY:
REGULATION/LAW/STATUTE:
DEPARTMENT:
DIRECTOR:
DATE:
ACTION STEPS TO COMPLIANCE
Steps/Description Responsibility Completion
Date
Seton Hall University Compliance
Calendar Template

54. TCS Education System
Compliance Calendar Template
Standard Requirement
Responsible
Office Deadline Status
FIRST QUARTER
Higher Ed
Corporate & Business Operations
Tax
Employment
Financial/Audit
Information Privacy & Security
Other

55. REFERENCES
• http://rmitchel.uoregon.edu/sites/rmitchel1.uoregon.edu/files/resume/chapters/2007-OxfordHandbookIEL.pdf
• file:///C:/Users/dell/Desktop/MAM%20ROZINA...%20MPHIL%20II/10.1.1.622.4530.pdf
• file:///C:/Users/dell/Desktop/MAM%20ROZINA...%20MPHIL%20II/Lunenburg,%20Fred%20C%20Compliance%20Theory%2
• http://www.lalive.ch/data/publications/Compliance.pdf
• https://tunguska.home.xs4all.nl/Publications/Docs/A%20Framework%20for%20Organizational%20Compliance%20Managemen
• https://opsdog.com/industries/compliance/compliance-organization-chart
• https://www.pwc.com/us/en/risk-assurance/publications/trends-in-compliance-organizational-structures.pdf
• https://www.int-comp.org/careers/a-career-in-compliance/what-is-compliance/
• https://www.wallstreetinstructors.com/ce/continuing_education/ethics/id18.htm
• https://serval.unil.ch/resource/serval:BIB_92B4440A1D9D.P001/REF
• http://www.sciencedirect.com/science/article/pii/0022103178900458
• http://www.acupa.org/resources.html
• https://www.tcsedsystem.edu/expertise/
• https://www.shu.edu/#
• NACUA: http://www.nacua.org/
• Society for Corporate Compliance and Ethics http://www.corporatecompliance.org
• Association of Corporate Counsel: http://www.acc.com/
• ECOA : http://www.theecoa.org
• NACUBO: http://www.nacubo.org/
• https://www.pwc.com/us/en/
• Ethikos Magazine: http://www.singerpubs.com/ethikos/
• Ethisphere Magazine: http://ethisphere.com/?gclid=CMbC7siNtZ0CFdVL5QodnytqiQ

56. Questions?