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Compliance means more than the law

Published: 2013-11-20

Assistant Professors Jennifer Altamuro, John Gray, and Haiwen (Helen) Zhang

Why should compliance be at the forefront of every business? For some, it’s the law. But for every business, it just makes sense. Research by Fisher’s Jennifer Altamuro (pictured left), John Gray, and Haiwen (Helen) Zhang further underscores the importance of company-wide compliance measures as a way to bolster performance and mitigate costs and turnover.
     
The study, which examined compliance evaluations from U.S. Food and Drug Administration plant inspections and accounting restatements in the pharmaceutical and medical device industries, found that:

  • Stock holdings reacted negatively to accounting restatements if the restating firms also suffered from weak quality control
  • The capital market imposed a higher cost on firms that exhibit non-compliance across multiple business functions within the organization
  • Non-compliance across multiple business functions can lead to higher CEO turnover, indicating that boards consider the “tone at the top” as important as  reducing overall compliance risk

Companies looking to increase efficiency and those regulated by legislation like the Sarbanes-Oxley and Dodd-Frank Acts should -- rather than place compliance into separate “silos” -- strive to create a “culture of compliance” where risk is systematically managed from the top levels of management.

Research in progress