Compliance for Top Managers: How Internal Policies Can Save You From Court

Valeriia Gudiy, attorney at Law, partner

Source: GRC.ua

Compliance is no longer a trendy innovation, but a fundamental tool for managers, without which modern company management becomes a professional roulette game.

In fact, the organisation of internal control systems is a primary necessity that helps managers act in good faith, reasonably and in the interests of the legal entity, as enshrined in Article 92 of the Civil Code of Ukraine.

Collective agreements and codes (rules, principles) of conduct become legal “beacons”: they define standards of conduct, and their systematic implementation is perceived by the courts as proper management.

International Compliance Standards: What Ukrainian Companies Should Focus On

But the real power of compliance lies in practices that have long been mandatory in the international corporate environment. Companies in the US, EU, Japan and Canada apply comprehensive compliance procedures: risk assessment, due diligence of third parties, regular internal controls, speak-up and whistleblower protection mechanisms, mandatory training, and procedures for documenting management decisions.

The results show that such procedures are important, because in global practice, managers are responsible not only for the outcome, but also for the absence of an organised process that should have prevented the violation. If the processes worked, the manager is protected. If there were no processes, the violation becomes his personal responsibility.

Compliance in Ukrainian Legislation

The organisation of internal procedures for employee compliance with legislation is gradually being implemented in Ukrainian legislation. That is why internal policies, compliance investigations and risk analysis procedures are becoming legal evidence of due diligence. Without them, managers are left defenceless in court.

For example, according to Article 141 of the Labour Code of Ukraine, the employer must properly organize the work of employees, create conditions for increasing labour productivity, ensure labour and production discipline, strictly comply with labour legislation and occupational safety rules, take measures to prevent and counteract mobbing (bullying), be attentive to the needs and requests of employees, and improve their working and living conditions.

Article 158 of the Labour Code of Ukraine also stipulates that the employer is obliged to take measures to ensure the safety and protection of the physical and mental health of employees, to prevent risks and stress in the workplace, and to conduct informational, educational and organisational measures to prevent and counteract mobbing (bullying).

Usually, evidence of the measures taken includes policies (procedures, rules) for conducting relevant investigations, training, corporate conduct rules, etc. Creating a safe organisational culture is a legislative trend, as a practice is beginning to emerge whereby managers risk losing their jobs if they fail to take measures to prevent mobbing.

What Corporate Policies Protect Managers?

For corporate policies to truly protect managers in potential disputes, they must be more than just a “folder of documents”; they must prove that the manager is acting appropriately, prudently, and within the law.

For example, an implemented Decision-making Policy can protect managers in disputes over damages, invalidation of transactions, and abuse of authority, as it may contain:

• a procedure for agreeing and making decisions;
• clear criteria for decision-making;
• mandatory risk assessment;
• separation of powers;
• implementation of internal policies, rules and procedures that are mandatory for employees.

In turn, an anti-corruption policy and a conflict of interest prevention policy can protect in disputes with regulatory authorities and prevent criminal offences, as they may provide for:

• procedures for identifying and declaring conflicts of interest;
• prohibition on receiving gifts, rewards, bonuses;
• rules for interacting with civil servants;
• mechanisms for controlling counterparties (due diligence);
• check-list for checking counterparties;
• procedure for agreeing on contract terms;
• mandatory legal risk review.

A labour compliance or internal compliance investigation policy protects against labour disputes and can be useful during State Labour Service inspections, as it may include:

• clear and understandable internal investigation procedures;
• rules for gathering evidence and methodologies for assessing facts;
• internal and anonymous channels for employees to submit complaints and reports;
• algorithms for responding to mobbing and discrimination;
• guarantees of protection for persons who report violations.

Compliance as a Strategy for Protection and Predictability

The implementation of compliance procedures does not indicate internal bureaucracy, but rather speaks to predictability, because with clearly defined procedures, management decisions will not depend on mood, but will be explained by relevant policies and documented standards of conduct. Compliance is about ensuring that every step is legally protected. For Ukrainian top managers, this is no longer a choice, but a requirement of the times, where the price of a mistake is not only the company’s reputation, but also their own career.