Compliance management for public private or non-profit organizations ebook

Sign in to see the full collection. In today's business climate, accountability, transparency, and a high regard for laws, regulations, and ethical conduct is as much a part of how an organization manages its affairs as its primary mission and operations. Compliance Management for Public, Private, or Nonprofit Organizations is a complete, hands-on guide to implementing strategies and techniques for developing, managing, and improving the compliance function of any organization.

Author Michael G. Silverman is a corporate expert in strategic planning, program management, compliance, risk assessment, and policy development. In Compliance Management for Public, Private, or Nonprofit Organizations , he presents a comprehensive treatment of the subject by examining the traditional compliance issues associated with laws and regulations, as well as matters surrounding ethical behavior, organizational structure, technology, administration, and risk management.

From establishing compliance goals and managing education and training programs to operating a whistle-blowing program and addressing staffing and budgeting requirements, this practical resource covers everything compliance officers and risk and organizational managers need to know, including: Where and how to establish a compliance program within an organization The critical skills and expertise for maintaining an effective compliance program Pros and cons of making a compliance program a part-time function of an organization How to deliver bad news to senior management—and survive Compliance Management for Public, Private, or Nonprofit Organizations includes a wealth of examples that illustrate the real-world applications of critical strategies and techniques for using the board of directors and senior management to promote compliance, reduce employee and management barriers to compliance, conduct in-depth risk assessment and compliance audits, and more.

Business Nonfiction. Kindle Book Release date: April 8, Availability can change throughout the month based on the library's budget.

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Learn more here. Bern: Editions Weblaw, New York: McGraw-Hill, This course describes public , private , and non - profit approaches to conserving endangered species on private Skip to content. Author : Michael G. Author : A. Derivative Litigation , which was decided by the Delaware courts, and several federal cases dealing with the role and duties of board members.

These cases are discussed further in Chapter 4. The U. Supreme Court, in , decided two matters involving sexual harassment in the workplace, Faragher v. City of Boca Raton and Burlington Indus. Ellerth, both of which had significant implications for organizational compliance programs. They created incentives for employers to create or enhance their existing compliance and ethics programs to address federal antidiscrimination laws.

The Legislative Response For modern organizations, the focus on legal and regulatory compliance is fueled by the panoply of federal and state laws and regulations. In areas as varied as antidiscrimination, occupational health and safety, environmental law, money laundering, transportation, and health-care billing practices, government regulation dictates the form and manner in which many organizations operate.

Increasingly, this includes specific measures that address organizational compliance requirements. However, the most prominent law dealing with corporate governance and compliance was passed in Sarbanes-Oxley. Reflecting the widespread corporate governance failures of major corporations in and , Congress passed this legislation by overwhelming margins: it passed the House by a vote of and the Senate by Some have called Sarbanes-Oxley the most significant or onerous business reform legislation since the enactment of the Securities Act of , the Securities Exchange Act of , and the Investment Company Act of The importance and impact of the Sarbanes-Oxley Act of cannot be underestimated.

While the focus of the legislation is on publicly traded companies, its scope, power, and influence reverberate throughout the economy. Affects auditors and lawyers and the role they play in internal corporate governance. For boards of directors, the legislation establishes new responsibilities for the audit committee. Senior management responsibility is significantly enhanced. Auditors are not allowed to provide to a company, contemporaneously with audit services, nine nonaudit services e.

Sarbanes-Oxley and its implementing regulations require companies to disclose whether they have adopted a code of ethics, and if they have not done so, why not. However, many companies have used the requirement to issue companywide codes of conduct applicable to all employees. The legislation obliges public companies to install an internal whistleblowing policy for employees and others to report accounting, internal control, and auditing problems, and establishes protections against retaliatory actions.

Finally, at the heart of Sarbanes-Oxley is Section It mandates that a company assess its internal controls for financial reporting. This has been a source of great controversy because of the time and expense involved in conducting the analyses although in , the Securities and Exchange Commission gave some relief to smaller organizations.

As we shall see, in organizations ranging from hospitals, museums, cooperative apartment buildings, universities, and charitable organizations to the government itself, Sarbanes-Oxley has left its governance and compliance imprint.

The range of federal activities has run from the extreme of threatening suspension and disbarment unless compliance programs are in place to offering proactive advice and guidance on best compliance practices. Federal agencies such as the Environmental Protection Agency EPA have created examples of model compliance programs and made them available through Internet sites and various publications.

The EPA offers five different types of economic models to calculate compliance costs. Increasingly, regulators and prosecutors have incorporated compliance-related provisions in deferred prosecution or corporate integrity agreements. In the health-care industry, for instance, H. Lowell Brown, in a study in the Delaware Journal of Corporate Law, noted: The real catalysts for the wide spread adoption of health care compliance programs, however, have been the [Department of Justice] and the [Office of the Inspector General of the Department of Health and Human Services].

These government-imposed compliance programs usually require corporations to commit substantial assets to compliance and involve government and private oversight. Many of these features are consistent with the tenets of the Federal Sentencing Guidelines for Organizations.

Inspectors General The Inspector General Act of created the position of inspectors general IGs within the executive branch of the federal government. Department of Justice Amidst the passage of Sarbanes-Oxley and the continuing revelations of corporate misbehavior, on January 20, , Larry D. Department of Justice, issued the Principles of Federal Prosecution of Business Organizations the principles, sometimes referred to as the Thompson memo.

The document provides guidance for federal prosecutors on whether or not to file criminal charges against business organizations for wrongdoing. The principles list nine criteria that govern business prosecutorial decisions. Two of these factors directly involve compliance programs. The principles are discussed in greater detail later in the book. Federal Regulatory Agencies Consistent with the compliance initiatives undertaken by the executivebranch agencies, federal regulatory agencies have been active in promoting compliance programs.

Agencies ranging from the Securities and Exchange Commission to the Federal Energy Regulatory Commission have taken strong positions on issues of organizational compliance. In one of the strongest statements on compliance, Joseph T. Kelliher, the chairman of the Federal Energy Regulatory Commission FERC , which oversees the wholesale energy market in the United States and regulates interstate trade in electric energy, said in an October 20, , FERC statement: Our purpose is firm but fair enforcement of our rules and regulations.

We have a duty to be clear on what the rules are. Our goal is to facilitate compliance—and to quickly identify and sanction noncompliance. Similarly, the Securities and Exchange Commission SEC has taken a very public stance in promoting compliance initiatives. Glassman, in an October 17, , speech to financial executives, vividly stated her views on compliance: If your goal is to get as much money as possible in the door today—even if it leaves shortly thereafter in the form of fines and litigation settlements—then you may be tempted to look the other way.

I respectfully suggest that firms that cut corners on compliance jeopardize the long-term profitability—and ultimately viability—of the firm.

Failure to safeguard this reputational asset with first-rate governance and compliance procedures is a serious failure in strategic thinking. Remember that although there are a lot of business risks inherent in running a securities firm, regulatory risk—which is manageable—probably poses the single greatest potential doomsday scenario, capable of shutting the doors of even the most prestigious firm forever.

Securities and Exchange Commission Leniency Guidelines. How did the company handle the misconduct when it was discovered? Did it take prompt action to stop the action and punish the wrongdoers? Did the company adopt more effective internal controls and procedures to prevent a recurrence? State Governments While the federal government has been the predominant player in addressing the issues of organizational wrongdoing, it was certainly not the only one.

During the developing story of corporate wrongdoing in the early part of this decade, the states, through their attorneys general and securities regulators, played an increasingly active role in prosecuting organizations for wrongdoing. California, Massachusetts, and New York began to aggressively pursue corporate malfeasance. Even smaller states, such as Oklahoma, took an active role: in , Oklahoma prosecutors filed a case against WorldCom for accounting fraud.

The agreement forced the brokerage firms to undertake extensive measures to ensure the integrity of their research and investment operations. In , the New York State attorney general and the Securities and Exchange Commission negotiated a settlement with Alliance Capital Management for a case involving the illegal practice of market timing. In addition to the monetary settlement, Alliance had to implement substantial governance and compliance changes to safeguard against future harm to its shareholders.

Among these changes were the creation of ethics and internal compliance committees, the installation of a company ombudsman, and the requirement that the company submit to an independent compliance review at least every other year. On September 28, , the California legislature enacted its own comprehensive state-level corporate disclosure requirement entitled the California Corporate Disclosure Act.

Government Examines Its Own Operations While federal and state governments were busily promulgating guidance on compliance for a wide range of organizations, they were not exempt from the need to address the issues of compliance within their own operations.

Indeed, the plethora of oversight agencies is staggering: comptrollers, inspectors general, internal auditors, ombudsmen, executive regulatory bodies e. The growth in the number of federal agencies with compliance responsibilities has been significant. As the memorandum noted: A re-examination of the existing internal control requirements for Federal agencies was initiated in light of the new internal control requirements for publicly-traded companies contained in the Sarbanes-Oxley Act of The circular also emphasizes the need for agencies to integrate and coordinate internal control assessments with other internal control-related activities.

The Nonprofit Sector Organizations in the nonprofit sector are increasingly paying significant attention to issues of compliance, ethics, accountability, transparency, and internal controls. The passage of Sarbanes-Oxley and its focus on corporate governance have been a prime catalyst for this movement. The adoption of Sarbanes-Oxley best practices can be seen, for instance, in the activities of nonprofit associations and the advice and guidance that they are offering their members.

Anticipating greater scrutiny by auditors, state agencies, the IRS, and other regulatory bodies, these associations are calling for greater attention to the issues of corporate governance in their member organizations. Similarly, Independent Sector, a leading organization for charities, foundations, and corporate giving programs, instituted an extensive program for its members dealing with organizational accountability and providing technical assistance in such areas as conflicts of interest, codes of conduct and ethics, audit committees, and financial report certifications.

Enhanced Federal Oversight In June , the Senate Finance Committee staff released a draft white paper that contained a number of proposals to impose governance requirements similar to those required under Sarbanes-Oxley on the nonprofit sector.

Shortly thereafter, in January , the Congressional Joint Committee on Taxation released a series of proposals prepared by the Panel on the Nonprofit Sector. Among the proposals was an increase in penalty taxes for misconduct by tax-exempt foundations and charities. The IRS, which has significant oversight over tax-exempt organizations, also weighed in with compliance-related requirements based on Sarbanes-Oxley.

Organizations must now declare whether or not they have developed and implemented a conflict of interest policy consistent with the IRS model. If an organization has not adopted such a policy, it must explain its reasons for not doing so to the IRS. California, for instance, passed the Nonprofit Integrity Act, which is based on requirements derived from Sarbanes-Oxley. The act became effective on January 1, , and applies to all charities that do business in California, regardless of where the entity is organized.

The audit results are to be publicly disclosed. Further, an independent audit committee must hire the auditor and oversee the relationship between the organization and the auditor to ensure that there are no conflicts of interest. Private-Sector Oversight Compliance obligations and activities do not emanate only from government mandates. Increasingly, private-sector organizations, both U. From the New York Stock Exchange to the accounting profession, private-sector organizations e.

Corporate Social Responsibility Since the s, there has been an increased focus on corporate behavior and responsibilities. International codes of conduct governing corporate behavior have proliferated. These codes identify universal, uniform standards related to conflicts of interest, discrimination, corruption, treatment of employees, and obligations to the community and to stakeholders.

Global Compact with Business illustrate this growing trend. By , the U. Global Compact, for instance, had more than 3, companies from more than countries endorsing its provisions and its commitment to nine principles of human rights, labor, and environmental sustainability. Shareholders and NGOs Along with the expanded focus on corporations as good corporate citizens, the recent decade has seen the role, power, and influence of shareholders and nongovernmental organizations increase dramatically in corporate affairs, especially in matters of corporate governance.

The Growing Influence of Institutional Shareholders Of particular importance has been the growth of large institutional investors and their expanded focus on issues related to corporate governance and corporate behavior. The power, strength, and influence of these large institutional investors cannot be underestimated. According to the survey, 70 percent of these investors said that corporate governance is very important or extremely important to them.

State governments, e. Reflecting this concern, a group was formed to restore investor confidence through better corporate governance. Led by state treasurers and pension funds, the National Coalition for Corporate Reform was created in As the largest public retirement system in the U.

CalPERS is not simply a passive holder of stock. The number of NGOs is staggering. According to James A. Paul in the June issue of Global Policy Forum, some 25, organizations qualify as international NGOs with programs and affiliates in a number of countries —up from less than a century ago. Amnesty International, for example, which has taken a strong stance on the role of corporate behavior and human rights, has more than a million members and has affiliates or networks in over 90 countries and territories.

Its London-based International Secretariat has a staff of over that carries out research, coordinates worldwide lobbying, and maintains an impressive presence at many international conferences and institutions. Since the late s, relations between NGOs and corporate entities and policy makers have evolved. While violent protests from some NGO organizations still make headlines, the reality is that both parties have entered an era of constructive dialogue.

In , thousands protested the policies of the World Trade Organization as it met in Seattle. This is a very important forum. By its very title, this gathering acts as a reminder to the world leaders attending the World Economic Forum that international civil society is watching them.

This community wants action, not words; it wants progress, not pronouncements. And it wants corporate accountability, not public relations.

Gap Inc. The growing visibility and credibility of NGOs as a force for institutional change can be found in a recent survey. At the same time, public regard for corporate executives and government officials has diminished. According to the Edelman survey, chief executives and financial officers are viewed as credible sources by only 3 of 10 opinion leaders in the United States, Europe, and Japan. The Equator Principles.

The Equator Principles are a set of voluntary environmental and social guidelines for ethical investment practices. In an article by Oliver Balch in the July 1, , issue of The Banker, when the Equator Principles were first introduced in , 10 banks had agreed to them. While there is cooperation, there is still skepticism and pragmatism. Their reasoning is far more down to earth. Banks are increasingly conforming to the view that social and environmental risks pose a threat to long-term shareholder value.

In the course of less than two decades, access to an extraordinary depth of information and the speed and ease of communicating with others have significantly influenced the increased focus on compliance issues. In this era of WiFi, e-mail, instant messages, and laptops that are intrinsically part of our daily lives, it is astounding to note that it was only in that the first friendly interface to the Internet was developed at the University of Minnesota.

Or that Delphi, the first national commercial online service to offer Internet access to its subscribers, first opened up an e-mail connection in July and added full Internet service in November of that year. The transformation has been staggering. The July 10, , issue of Fortune reported that 77 percent of American adults are online, up from 9 percent a decade ago, and that million people are online worldwide.

Never before has such a wealth of information been so readily available. Information on organizational performance, activities, and entanglements can be found by someone sitting at a desk in almost any part of the world.

Data that used to take hours, days, or weeks to retrieve can be found within minutes and then shared with others around the world shortly thereafter. The advent of e-mail and the Internet has given organizations the ability to mobilize their constituents swiftly and inexpensively. Moreover, the Internet serves as a unique source of technical information. Beyond its ability to allow access to information and mobilize others, the Internet is empowering individuals to voice their opinions, objections, and ideas to an audience never imaginable previously.

They are providing a new electronic age printing press that costs little to operate and reaches audiences of millions in almost instantaneous fashion. Irate stakeholders, disaffected employees, aggrieved shareholders, and annoyed clients and customers can make their voices heard as never before. Organizations that once could hide behind a wall of secrecy and obfuscation are increasingly exposed. The implications for corporate governance and organizational compliance practices are enormous.

Consumers and employees are bad-mouthing you on their blogs, tiny outfits on eBay are under pricing you with counterfeit or gray-market products, and competitors are appearing from nowhere and subverting your business model. With the web has come an unnerving and growing transparency. Summary The focus on compliance in modern organizations is a complex set of forces that transcend a particular series of events or scandals.

While these acts of wrongdoing may serve as a catalyst or a rallying point for legislative and regulatory action, there are other broader forces at work societal, judicial, and technological that are inexorably forcing our attention to issues of organizational behavior and compliance. Understanding the full spectrum of these forces provides us with a guide to help shape the modern organizational compliance goals, programs, and tools that we will discuss in later chapters. Sentencing Commission.

Effective Compliance and Ethics Program. The maze of regulatory demands imposes an enormous burden on organizations. In , the U. Federal Register, which is the official U. As a senior compliance officer for a major financial organization once said, the biggest challenge she faced was simply keeping up with the bewildering array of laws and regulations governing her operations. Beyond the sheer volume of regulations, there are the often overlapping regulatory compliance jurisdictions.

A classic example is a January report by the U. There are 15 agencies that administer at least 30 laws related to food safety. Compounding the federal regulatory compliance burden is the complexity of dealing with state governments. In testimony before a U. Senate committee in September , an insurance official, William McCartney, described the situation with respect to the state insurance regulatory system: [The] lack of uniformity and inconsistency are hallmarks of the state insurance regulatory system.

The mere existence of different state regulators presents a significant problem for any company serving a national and highly mobile population. This problem is compounded by the fact that, even within each jurisdiction, there are often differing systems for different lines of business, making the process incredibly cumbersome and unresponsive to consumer needs. Regulatory compliance also transcends government regulation.

The government has increasingly relied on private means to achieve public ends, not only involving services to the public, but the origination and implementation of public policy as well. Compliance mandates and obligations are increasingly being delegated to private organizations to issue standards of conduct and behavior, some of which have the force of law and others a moral-ethical imperative. Regulatory requirements address every facet of organizational life.

They range from the crucial to the absurd, covering areas as varied as health and safety issues, environmental issues, wage and hour regulations, equal employment opportunity, antitrust considerations and competition, data privacy, fund-raising, and even personal hygiene.

Regulatory Compliance Regulatory compliance and its enforcement produce an ever-changing environment. They pose significant legal, organizational, and financial challenges for both the regulators and the regulated. For government agency officials, there is the never-ending quest for the most effective and efficient mechanism to ensure that organizations comply with legislative mandates.

And for many of the organizations that are subject to these requirements, there is the perpetual quest to meet regulatory burdens despite limited resources, time, experience, and funds. Organizations struggle to understand and manage within this maelstrom of rules and regulations. Indeed, as Figure 1 points out, the combined forces of government regulations, voluntary codes, company policies, and self-regulating organizations have placed great pressure on our modern organizations.

The mandate for compliance stems from multiple sources. Like its stellar counterparts, regulation is also forever evolving in form and fashion. It should be noted that under a self-regulatory scheme, government regulators still reserve the right to impose legal sanctions against individuals or organizations that violate the law or regulation.

This approach has been adopted by various government agencies ranging from U. Customs and Border Protection its Importer Self-Assessment program allows trade-compliant businesses to have less regulatory oversight and the U. OSHA, for instance, introduced its Voluntary Protection Programs VPP in as a means of fostering industry cooperation in workplace safety and health initiatives, and at the same time refocus its regulatory oversight on other high-risk entities.

Food and Drug Administration acknowledged the need for the food industry to police itself. For instance, the government resources available for policing organizations have substantially decreased. In an August Urban Institute report, E-Government and Regulation, it was stated that between and , the number of business establishments in the United States grew by 56 percent, from 4.

Despite this increase, the resources available to the U. Department of Labor for inspections declined. The number of wage and hour inspectors declined by 9 percent, and the number of OSHA inspectors declined by 29 percent! In a report, Self-Regulation in the Alcohol Industry: A Review of Industry Efforts to Avoid Promoting Alcohol to Underage Consumers, it lauded the virtues of self-regulation: For decades, the FTC has recognized the important role that effective self-regulation can play and has worked with many industry groups to develop sound self-regulatory initiatives.

Well-constructed industry self-regulatory efforts offer several advantages over government regulation or legislation. It can permit application of the accumulated judgment and experience of an industry to issues that are sometimes difficult for the government to define with bright line rules.

With respect to advertising practices, self-regulation is an appropriate mechanism because many forms of government intervention raise First Amendment concerns. Self-regulation has not been without its detractors. Critics fear that the regulatory process may be co-opted by the businesses or organizations that are the subjects of regulation. Other fears include weaker enforcement when violations of law and practice occur, and that self-regulatory bodies do have not the power or authority to command compliance that government agencies possess.

Internal Corporate Compliance Systems A classic example of self-regulation has been the growth of internal corporate compliance systems. The rise of internal compliance systems is attributed to the Federal Sentencing Guidelines for Organizations. The FSGO prescribe seven key components for an effective compliance program: 1. Organizations must establish compliance standards and procedures to be followed by employees and agents of the organization.

Organizations must ensure that substantial discretionary authority is not delegated to employees with a propensity toward criminal conduct. Organizations must provide training programs and effective communications about their compliance standards and procedures.

Monitoring and auditing systems must be implemented, and a reporting system must be established through which employees can report wrongdoing without fear of retribution e. Organizations must provide incentives for employees and others to come forward to report issues and must establish disciplinary policies for those involved in wrongdoing.

After an offense has been reported, organizations must take reasonable measures to respond and prevent future incidents from occurring. These seven elements form the basis for organizational compliance programs in the United States.

The November amendments to the Federal Sentencing Guidelines for Organizations added another level of complexity for internal compliance programs. As previously mentioned, the amendments expanded upon what organizations must do to have their compliance programs viewed as effective by the courts. Private-sector organizations are playing an increasingly significant role in developing and overseeing programs, policies, and standards of behavior that affect organizational compliance. This section examines several examples of private-sector actions: self-regulating organizations, standards-setting organizations, credit rating agencies, and voluntary industry codes and the role they play in compliance.

Self-Regulating Organizations In keeping with the precepts of self-regulation, self-regulating organizations SROs play a critical role in the structure of legal regulatory compliance and are a feature of a number of professions, including accounting, medicine, and the law.

In the U. New York Stock Exchange Regulations. In some respects, these rules are more stringent than Sarbanes-Oxley. The Financial Industry Regulatory Authority, which regulates broker-dealers in the United States, also issued enhanced corporate governance standards in As Valentine V. Craig noted in the FDIC Banking Review, the NASD required listed members to have a majority of independent directors, a code of conduct for all directors and employees, and the approval of stockholders for the adoption of all stock option plans and for any material modification of such plans.

As with the NYSE standards, audit committee members may receive no compensation other than their board compensation. The Responsible Care program is a voluntary program for reducing chemical hazards. It was started in by the Canadian Chemical Producers Association after the horrific Bhopal, India, chemical leak. Standards-Setting Organizations The past decade has seen a growth in the importance of private organizations, both U.

A number of these organizations have been active in developing standards that are increasingly playing a key role in compliance management functions. Internal Control Framework. In recent years, increased attention, as witnessed by the passage of Sarbanes-Oxley, has been devoted to internal control by auditors, managers, accountants, and legislators.

One of the best known of these initiatives is the internal control framework developed by the Committee of Sponsoring Organizations of the Treadway Commission COSO in the early s. COSO is a voluntary, private, nonprofit organization. The COSO framework defines internal control, describes its components, and provides criteria against which control systems can be evaluated.

It offers guidance for public reporting on internal control and provides materials that management, auditors, and others can use to evaluate an internal control system. Two major goals of the framework are to 1 establish a common definition of internal control that serves many different parties, and 2 provide a standard against which organizations can assess their control systems and determine how to improve them.

The linkage of compliance and risk management has become increasingly important. The convergence of compliance and risk has been reflected not only in the organizational structure of compliance operations e.

Strategies to manage risk are becoming of paramount interest. Federal Reserve Board Governor Susan Schmidt Bies was quite succinct in her views on the integration of compliance and risk. The International Organization for Standardization ISO is a global federation of national standards bodies created to set standards for similar technologies in different countries.

Two of its standards—ISO , which deals with quality management, and ISO , which deals with environment management—are probably the best known. The ISO program is voluntary. Companies wishing ISO compliance certification go through an extensive process. They must be able to fully document each process, control, management responsibility, and systems specification. For example, in complying with quality management standards, companies must be able to demonstrate their ability to identify customer requirements, needs, and expectations; determine customer satisfaction; establish procedures for customer communication; and make employees aware of the importance of meeting customer requirements.

ISO certification is playing an increasingly important role in compliance operations, especially for environmental organizations. Environmental Protection Agency, for instance, has more than 40 voluntary programs. Many of these programs require organizations to establish environmental management systems and to self-police their environmental performance.

Companies are considered to be in compliance with government regulations if they follow specific program guidelines. The Basel Committee on Banking Supervision. The Basel Committee was established in by the central bank governors of the Group of Ten countries.

It plays a critical role in setting standards in banking regulation. It requires that banking supervisors be satisfied that effective compliance policies and procedures are being followed and that management takes appropriate corrective action when compliance failures are identified.

Credit Rating Agencies Credit rating agencies exert enormous influence in their role of assessing the creditworthiness of organizations in the public, private, and nonprofit sectors. Fitch states that the implementation of Section requirements is likely to cause internal control problems to surface more frequently than in the past.

As noted earlier, Section requires management and its auditors to express an opinion on the adequacy of controls over financial reporting and disclosure.

Voluntary Industry Codes Another permutation of self-regulation has been the proliferation of voluntary codes of organizational conduct. Apparel Industry, codes of conduct have become a fixture of organizational compliance. In many respects, voluntary codes perform functions similar to those of government regulations. Codes are unlike regulations in that they are not rules directly backed by the power of the state.

Codes may constitute agreements among industry or NGO [nongovernmental organization] members or employees in a firm , which may be embodied in contracts, and commit parties to adhere to the terms of the code. Sanctions or other consequences may be provided for breach of the code, and mechanisms may also be included to deal with disputes or noncompliance, such as mediation or independent third-party arbitration. There may even be provisions for independent auditors, competitors, community representatives, and members of civil society organizations to aid in code enforcement.

From a compliance perspective, it is important to note that voluntary codes exist within a broad legal context that includes statutes, regulations, guidelines, and enforcement and compliance policies.