Compliance – what does it mean?
One word that is used increasingly in trade and industry in recent years is compliance. It is often given as a reason why something can or cannot be done.
When EvoBus UK kindly invited me to a recent International Press Event in Stuttgart, I asked if it would be possible to have an interview with a corporate lawyer to discuss compliance and understand Daimler’s position.
On arrival in the Carl Benz Centre, I was told that Hartmut Schick, Head of Daimler Buses, would meet me for an interview at 13.00. My first thoughts were that wires had been crossed and who was going to see the corporate lawyer? The answer soon became crystal-clear.
Hartmut Schick started by saying that the ultimate responsibility for compliance within Daimler Buses rested with him. Companies have to adhere to the highest standards in business and must be aware that violation of laws can result in drastic legal consequences.
Compliance is often associated directly with corruption in a relationship. There are very strict national and international laws, for instance the Foreign Corrupt Practices Act in the United States, the UK Bribery Act, the equivalent German Strafgesetzbuch StGB, and similar laws in many other countries that punish bribery and corruption and have international validity.
Corruption is not just giving someone a cash incentive to enter into a contract, or as we say in this country. ‘a brown envelope.’ It includes other malpractices like price fixing, giving property, lavish foreign holidays, or hospitality that is out of all proportion to the scale of business.
Compliance is taken very seriously in Daimler. Hartmut Schick said that corruption in the business world can be compared to doping in sport: fair competition is prevented. The effects on image and reputation are extreme. He gave as an example the loss of reputation of extreme cycling, and especially the Tour de France.
Prosecution for failure to observe compliance can have a drastic effect on the image of a company. It is particularly significant for companies with strong brands such as Daimler. He quoted Warren Buffet: ‘It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you will do things differently.’
Consequences for a company can include all or any of the following: investigations; criminal prosecution and civil liability; fines and loss of profits running into millions; considerable reputational damage; disruption of operations and potential closure of a business; loss of government contracts; and civil actions from competitors or shareholders.
The consequences for employees include investigations; criminal prosecution and civil liability; ‘ fines and financial penalties; imprisonment; reputational damage; dismissal; prohibition from professional practice; and civil actions by the employer.
Daimler Buses, indeed the whole of Daimler, had turned compliance into the basis for sustainable success. Hartmut Schick said: ‘Bring the values that you have at home to the company.’ Those who act with integrity are winning the confidence of their customers and business partners and qualify for a lasting partnership.
The image of a company is necessary not only for business success but also in terms of its attractiveness as an employer. Graduates more and more pay attention to the values represented by a company and whether it is committed to sustainability and social issues.
Dr Dieter Zetsche, CEO of Daimler AG, has said: ‘At Daimler, compliance is not optional, but an integral and permanent component of our corporate culture.’
Already in 2006, a central Group Compliance unit was established and has since then built up an effective organisation that facilitates the uniform implementation and management of the compliance programme. Its primary goal is to create framework conditions and to develop measures that protect Daimler and its employees from false decisions and inappropriate conduct, while at the same time requiring and promoting legally compliant behaviour.
Moreover, in 2011, Daimler created a new Board of Management position for ‘Integrity and Legal’ and appointed Dr Christine Hohmann¬Dennhardt, formerly a Judge of the Federal Constitutional Court in Germany, with responsibility for this position. The company has achieved ‘gold standard’ when it comes to integrity and compliance, as former compliance monitor Louis Freeh confirmed at the Daimler annual meeting in 2013.
Hartmut Schick said that he personally became involved in all contracts over a certain value. All employees in contact with customers and other external parties received training and regular updates. That gave them security in carrying out their daily work in a lawful manner.
It also gave customers the confidence to co-operate with a business partner that worked in an open and transparent manner. He said that business is never black and white, but employees are encouraged to raise any concerns. There is also the security of requiring two signatures on all more important correspondence.
He made a clear distinction between distributors and customers. Distributors are subject to a selection process. The expectations of Daimler Buses regarding compliance and integrity are communicated to the distributor. Clear rules of business are defined. Its management and employees are trained in accordance with these specifications and all these requirements are contractually assured.
This does not affect the end customer. Like any business, Daimler Buses would carry out financial checks on a new potential customer, for example one seeking to open an account with the parts department.
Any expense incurred by the company on its customers has to be fair, reasonable and in proportion. It was reasonable to invite a large number of trade journalists to Stuttgart to review the company’s progress, to learn about the latest Euro6 products, and to preview what Mercedes-Benz and Setra would be doing at Busworld Kortrijk. All expenses are properly recorded.
He gave an interesting example about expenses. Many of the customers who collect their new coaches from the Setra factory are family members. Setra likes to give the wife of the owner a bouquet of flowers. So long as there is a receipt and the gift is recorded, that is perfectly acceptable. Cash management at all levels has to be transparent at all times.
The desire of Daimler Buses to be seen to be compliant extends to regular checks on suppliers. That seems fair and reasonable, because their components are going into Daimler products. Any sensible supplier would be applying similar rules and standards in its own business.
Hartmut Schick said that the Group Compliance unit had ranked countries in terms of risk, based on the CPI Index of Transparency International and their experience.
In addition to the Compliance organisation in the business areas, there are also Local Compliance Managers around the world to provide on-site advice.
They can also give both general and specific training. The whole subject of compliance is well understood throughout Daimler Buses. It is more and more accepted and taken for granted in the everyday actions of the company and in dealing with each other.
In my experience all the main bus and coach manufacturers are well aware of the importance of compliance. There are only two of them in Germany and only two in Sweden. While I am very grateful to Hartmut Schick for his time and explanations, I would have expected similar answers from any of his competitors.
Compliance is common sense, and as Hartmut Schick said: ‘Bring the values that you have at home to the company.’ It is good advice.
By Doug Jack