Corporate compliance programs are increasingly recognized not just as a necessity but as a strategic advantage that can directly contribute to a company’s revenue. This shift in perspective is highlighted in the paper “Valuing Corporate Compliance” by Todd Haugh and Suneal Bedi, professors at Indiana University’s Kelley School of Business.
The genesis of their collaboration occurred during an informal discussion, where Haugh expressed the challenges of demonstrating the revenue-positive value of corporate compliance programs. Bedi, drawing on his marketing PhD background, suggested employing a choice-based conjoint analysis—a sophisticated marketing research technique that identifies what consumers value in products and how much they are willing to pay for those features.
Their research offers groundbreaking insights:
- Consumer Willingness to Pay for Compliance: Their findings reveal that consumers are indeed concerned about compliance and are willing to pay a premium for products from companies known for robust compliance programs.
- Compliance’s Relevance to Product Perception: The study suggests that the relevance of a compliance program to a product enhances its value to consumers. For instance, buyers consider compliance programs related to privacy and cybersecurity more crucial when purchasing mobile phones than those related to health and safety. However, for products like dining tables, health and safety compliance is deemed more important.
- Compliance Over Other Features: In the realm of mobile phones, consumers value privacy and cybersecurity compliance more than superficial attributes like color—despite heavy marketing focus on such features by manufacturers.
This research not only redefines the value of compliance from a liability avoidance tactic to a revenue-enhancing strategy but also positions compliance as a competitive differentiator in the marketplace. It suggests that compliance can be a proactive force in driving business growth, rather than merely a defensive measure to mitigate risks.
Haugh and Bedi’s work also indicates significant implications for the compliance profession, suggesting that a transparent and proactive compliance strategy can lead to increased revenues, thereby justifying further investment in compliance resources.
Lessons for B2B Companies:
- Supply Chain Influence: For B2B companies, compliance is crucial not just for direct customers but throughout the supply chain. Businesses are motivated to partner with suppliers that uphold high compliance standards, especially in sectors where end consumers are sensitive to environmental and ethical standards.
- Employee Attraction and Retention: Compliance also plays a key role in attracting and retaining employees, particularly among younger generations who value corporate responsibility highly. Companies with strong compliance cultures are likely to be more attractive employers.
- Competitive Differentiation: In competitive B2B sectors, robust compliance programs can distinguish a company from its competitors, potentially winning business from large corporate customers who value ethical operations.
Haugh and Bedi are exploring how their findings can be extended to measure employee preferences for workplaces with strong compliance cultures, potentially reducing turnover and lowering recruitment costs—further proving that effective compliance is not just a cost but a strategic investment.
Their pioneering work opens up new avenues for understanding the strategic benefits of compliance and invites more research into this vital area of corporate governance.
Source: thomsonreuters.com
