23 January 2019 at 14:38 BST

Compliance failures inflicting self-harm

Nearly half of Chinese and Hong Kong companies go ahead with deals despite compliance concerns, according to Baker McKenzie survey.

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Almost half of companies in Hong Kong and China have acquired or made investments in firms with serious compliance issues, states a new survey by law firm Baker McKenzie. This makes them more cautious than their counterparts in other parts of the world.

Added risk

About 48 per cent of Hong Kong and China-based companies surveyed said they acquired or made investments in firms they knew to have serious compliance issues, according to the survey. About 68 per cent of US companies who responded said that they knew from the beginning that there were significant compliance issues, but made investments or purchases anyway. This compared to a 60 per cent average among companies who responded worldwide. The survey interviewed more than 1,300 business leaders in Brazil, Canada, China, Germany, Hong Kong, Spain, the United Kingdom and the US. All of the companies had a global turnover of US$1.3 billion (HK$10.2 billion) or more. Mini vandePol, Baker McKenzie’s Asia-Pacific regional head for its compliance and investigations group, said ‘failing to adequately assess compliance liabilities exposes the business to additional risk, but it also removes potential leverage for negotiating on the price or terms of a deal.’ He added, ‘in today's business environment, companies cannot afford to ignore the significant strategic contribution that compliance functions can offer.’

Self-harming

Less than half of companies (43 per cent) said they involved their compliance functions when planning large-scale deals. In Hong Kong and China, 77 per cent of business leaders said they believed that compliance was the sole responsibility of the company’s compliance department and 42 per cent said they were reluctant to speak openly about compliance challenges for fear of potential issues being highlighted. About 57 per cent of companies surveyed worldwide said they expect compliance breaches to rise, citing the potential risk of exposure and volume of new regulations, according to the report. William Devaney, co-chair of Baker McKenzie's global compliance and investigations group, said firms are ‘are inflicting considerable self-harm and are significantly increasing their risk exposure.’

 
   
 
 
 

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