Updated: Oct 13
In today's business environment, companies face a wide range of legal, regulatory, and stakeholder obligations. These obligations will fall into four primary categories: rules, prescriptive, performance and outcome-based specifications.
Meeting these obligations can be a complex and challenging task. One way organizations can ensure they are complying with these obligations is through the adoption of procedural and programmatic compliance approaches.
In this article, we will discuss the differences between these two approaches and explore which one is better suited to meeting each type of obligation.
Procedural Compliance (Compliance 1)
Procedural compliance refers to the processes, and procedures that a company puts in place to meet its compliance obligations. It provides assurance that the organization's is able to meet prescriptive aspects of obligations, focusing more on activities rather than the result. Procedural compliance typically involves documenting "as-is" processes and policies and ensuring employees follow them. This approach is often seen as a top-down approach, with management setting the rules and employees following them.
The benefits of procedural compliance are that it establishes a clear framework for compliance and provides a record of compliance efforts which aids the audit function. This can be useful in demonstrating compliance to regulators or stakeholders. Additionally, it ensures that everyone within the organization is working towards the same goals.
However, the downside of procedural compliance is that it can be inflexible and bureaucratic, leading to a lack of engagement and commitment among employees to meet the desired outcomes.
Programmatic Compliance (Compliance 2)
Programmatic compliance, on the other hand, focuses on outcomes and policies rather than activities. This approach involves setting goals and objectives for compliance and measuring progress towards these goals. It is more about ensuring capabilities are in place to meet desired outcomes and avoiding undesirable ones.
Programmatic compliance is often seen as a bottom-up, or better, a participatory approach, with employees taking greater responsibility of compliance efforts along with the intended results through program and obligation ownership.
The benefits of programmatic compliance are that it encourages agency, innovation and flexibility. Employees are empowered to find new and creative ways to meet compliance obligations, which can lead to better outcomes. Programmatic compliance also fosters a culture of compliance, where employees understand the importance of compliance and are committed to achieving compliance goals.
However, the downside of programmatic compliance is that it can be more difficult to demonstrate compliance to regulators or stakeholders. It is easier to observe evidence of conformance rather then evaluate capabilities to effectively contend with uncertainty and risk.
Which Approach is Better?
So, which approach is better suited for each type of obligation?
Procedural compliance can help assure that the organizations are following established processes and procedures to meet compliance obligations. This approach is particularly useful in industries where regulation is mostly prescriptive and rule-based. In such industries, procedural compliance can help ensure that all legal and regulatory requirements are met, and the organization can avoid the severe consequences of non-compliance such as the loss of their operating license.
On the other hand, programmatic compliance may be more effective in industries where compliance obligations are focused on stakeholder expectations associated with outcomes such as customer privacy, security, sustainability, along with others. In these industries, a participatory approach that encourages innovation and flexibility may be more appropriate. Programmatic compliance allows employees to take ownership of compliance efforts and the results, which can lead to a more engaged and committed workforce. It also helps establish a social license by promoting a greater degree of loyalty, reputation, and trust.
Both procedural and programmatic compliance have their strengths and weaknesses, and the best approach will depend on the organization and its specific compliance obligations.
While procedural compliance provides assurance that the organization is following compliance rules associated with obligations, it focuses more on activities rather than the result. Whereas, programmatic compliance provides assurance that the organizations is meeting its obligations to achieve performance targets and advancing stakeholder outcomes.
Regardless of the approach or approaches taken, it is essential that organizations prioritize compliance and regularly assess their compliance efforts along with results to ensure they are meeting their obligations and contending with uncertainty. By doing so, organizations can minimize the risks associated with non-compliance and build a culture of compliance that promotes long-term success and greater stakeholder value.