Business Compliance in the Black Swan Age

The pandemic is different from common business risks and represents an example of a ‘Black Swan’ event - unforeseeable, extraordinary, extreme event which exceeds expectations and has serious consequences’.

Bankers, brokers and in general, people who deal with finance are familiar with the theory of ‘black swan’ which has a cult status in the American Wall Street. According to this theory, human history, that is, our social, political and economic reality, is shaped by unexpected events, those that we could not predict on the basis of previous experience and that stand out of the established pattern. The event of 9/11, the financial crisis of 2008, the current coronavirus pandemic, are examples of the ‘black swan’ which, like a tsunami, destroys previous practices and brings new patterns of behaviour at the global level.

Since we are talking about exceptional circumstances for which we do not have experience, it is normal to ask ourselves how to do business in conditions that are not regular or usual. The answer to this question is provided by the business function in companies, which we know as business compliance, and which itself had to adapt to the moment during the current pandemic.

Compliance is defined as a s a function that follows and ensures business operations in accordance with regulations and procedures (external and internal), helps the company to operate legally and fairly in the market, and prevents abuse, illegal and unethical behaviour. In practice, business compliance deals with the identification and prevention of foreseeable business risks, especially in terms of combating corruption and money laundering, protection of personal data and confidential information, elimination of the prevention of conflicts of interest, etc.

COVID-19 crisis as an unexpected and extreme event (‘black swan’ from the beginning of the story) has made the business world face special challenges. Global spread of coronavirus has had a serious effect on the day-to-day operations of all participants in the global and local markets, including the business compliance function, which in these new circumstances was supposed to ensure doing business according to legal and ethical standards. What did all the companies face, and how did the so-called compliance cope in the new circumstances?

Changes in business operations and changes in business compliance

In the conditions of a pandemic as a case for which you cannot be adequately prepared or have a fully developed action plan, it is clear that the capacities of all market participants are overstretched and that the biggest concern is preserving core business and functioning of key company divisions. Then the support functions (to which compliance essentially belongs) are rightly expected to help more than ever in making safe, clear and correct business decisions quickly and efficiently. Let's see what happened to the companies and what role the business compliance function played:

• There has been a change in priorities - the focus is shifting strongly from normal business to the health and safety of employees as well as to ensuring that goods and / or services are produced, provided and delivered with all safety measures. Therefore, the issue of business compliance may seem secondary, but precisely for that same reason it is important that this function is maintained and supported.

• Urgent requests emerge - new forms of business are being switched to overnight (digital tools are used more than ever, new business models are considered) and all requests for compliance analysis of new forms of business cannot be delayed. In such conditions, it is necessary to find efficient, permitted and functional ways of doing business as soon as possible, where previous practices do not give results or are impossible.

• Objective obstacles appear - state of emergency, border closure, curfew, limited gatherings, quarantine, ban/restriction of work of some facilities and all other measures in force in different countries, have made it difficult or impossible to conduct regular business activities (business meetings, signing documentation, delivery within deadline).

• There is intensive adoption of new rules - a large number of new, restrictive rules, on a weekly or daily basis, has increased doubts about the possibility of finding out about them and applying them on time, which increases the risk of violating them.

• We are witnessing the expansion of ‘technical’ risks - mass work from home of users who were not timely or sufficiently educated for such work poses a risk to IT security and can lead to vulnerabilities of internal systems.

• Lack of live communication is also evident - switching to online communication increases the risk of formalizing business relationships or switching to communication ‘to the extent necessary’ and not ‘to the extent it is good to know’, which is often of critical importance for business compliance.

• The challenge of making exceptions to the rule - there is a risk that business activities during a pandemic are seen solely as exceptional, i.e. not subject to previously set standards.

As expected, all of the above practices may lead to an increase in the risk for business compliance and the need to ensure compliance with the rules, procedures and standards that protect legal and ethical business, even in extraordinary circumstances. In these conditions, the question arises how to prevent this risk from becoming a harsh reality.

Usklađenost poslovanja u doba crnog labuda

Business compliance is a function that ensures that the company's business operations are in accordance with internal and external regulations and procedures.

Advice for overcoming challenges

In view of the above, the approach to risk control in the new circumstances in practice should be based on the existing system of business compliance, which will be further developed and adapted to new circumstances, but always with an unequivocally clear position on the need to follow the rules.

In particular, our experience from Hemofarm shows that in the specific circumstances in which we all found ourselves at the time of the pandemic, the following is of particular importance for business compliance:

Keeping up with the new regulations, both of the government and internal. In practice, this means that you will have to actively follow the adoption of new enactments in real time and without delay, by clear and short messages, inform colleagues about new rules to ensure following of regulations at any moment.

Monitoring business practice in a state of emergency. In short, you need to follow available sources of good business practice, such as websites of leading law firms, chambers of commerce, employers' associations and government institutions. All of them, during the COVID-19 crisis, showed proactivity and support not only to their membership but also to the general public.

Transition to informality, wherever it is possible and the right thing to do. The world of business sometimes pays too much attention to hierarchy, so this insistence on formalities in times of crisis can lead to greater risks than completely informal but efficient communicating of key information. That is why you should strive to convey the message immediately, regardless of the hierarchical level of communication.

Transmitting key messages through managers. This has proven to be a good method when as many employees as possible need to be informed about important messages. By sending a message through a line manager in times of crisis, you strengthen the ‘tone from the top’ and ensure that the message has reached the people for whom it was intended.

Reliance on proactivity and communication. Stay in touch with colleagues even beyond scheduled appointments, ask them how they solve problems, listen and get involved from the beginning in key activities to ensure business compliance, especially in the case of new business activities and plans.

And most importantly - we should not forget the role that business compliance has in the system and which must never be compromised, and that is to serve as a guarantee of following the rules, acting as a barrier against illegal and unethical behaviour and a guardian of the company's reputation. Last but not least, if you have any doubts about certain activities, always ask your business compliance manager for advice before proceeding.

What does the metaphor ’black swan’ mean

In long-ago times, we are talking about Europe in the 17th century, no one had seen swans other than white, so the claim that all swans were white was used as an example of undeniable truth. The opinion that the chance to find a black swan was almost non-existent was prevalent in the society of that time until the first black swan was seen in 1697 in Australia. From then until today, this metaphor has been used as confirmation that the experience we have does not necessarily mean that we know the truth.

Nassim Taleb, author of the global bestseller ‘The Black Swan’, uses this term to describe unexpected and incredible events that have strongly influenced the world, claiming that human history is most often shaped by events for which there is no previous experience and pattern of behaviour.