8 Reasons to Have a Robust Compliance Department By Donna Marie Serritella

Donna Marie Serritella

When a crisis arrives, it’s too late to prepare!

Protection:

Building a robust Compliance Department for your direct selling company provides protection
for a tremendous number of reasons. It provides protection for your customers, your independent distributors, your company, the brand, the products, AND the general public. They always say, protect the house at all costs and make sure you have smart, effective compliance in place. This protection will help you (sleep?) better at night. Why? Because you know you must have an active Compliance department to prevent the headaches and massive problems that can happen when Compliance is ignored.

To Uphold Policies:

Your policies are everything when it comes to providing a solid company foundation. A legally sound set of policies and procedures professionally enforced by a Compliance Department who knows the law is critical. Until then it’s virtually impossible to hold Distributors accountable to their actions out in the field. Don’t just borrow a set of policies from another company. That’s like borrowing a Compensation Plan. You don’t truly know what you’re getting. There are key sections to policies that must be customized to align with your culture and company. Be honest, will you read a 44-page document designed for another company to know what their violations and sanctions are? Seriously? Policies designed for your company from an MLM Expert Attorney can make a big difference.

A Master Intake Log is established to track the coordination of reported violations, sanctions, and result of communication with Distributors. Correct documentation is essential for Compliance Department protocol. The result is your company has a written history of enforcement Federal
Trade Commission regulators look for when evaluating compliance procedures. This is necessary because it provides an invaluable layer of protection to your long-term Compliance Action Plan.

Reduces Time & Stress:

Owners and corporate staff, even distributors, spend countless hours addressing compliance issues, which is not smart. In fact, it’s counterproductive for the owner or founder to be responsible for Compliance Management. It is NOT the role of the owner, the owner’s spouse or a distributor to take on Compliance and all it entails. Doing this weakens the relationships you’ve worked so hard to establish.
When an objective, neutral party runs Compliance properly and efficiently, you delegate that headache to others, and they update your staff and field leaders regularly. When owners try to perform these duties, it creates conflict in the field and is ineffective. Preparation is a must. A
Compliance expert will set up your department the right way by including intake, evidence collection, monitoring, and communication with Distributors (both one on one and as a group).
Education and follow up are crucial for success. It will also reduce time and stress for you, so you can focus on growing your business.

To Monitor the Field for Compliance:

A robust Compliance Department must include a comprehensive and documented monitoring
system. Your company is responsible for monitor the field for non-compliant activities.

With social media’s pervasive nature in almost everyone’s life, part of your Compliance Strategy MUST include Social
Media Management. Just addressing closed Facebook
groups and testimonials within them alone is a full-time job.
Social Media is known as a place where regulators go to look for compliance violations, so don’t think what goes online
disappears. It does not. Evidence proves Social Media is a hotbed for non-compliant activities.

Don’t keep your head in the sand. Clearly, this is a job for more than one person in a medium-size company. Large companies must have a Compliance team of skilled, experienced people. We
have an experienced team who work diligently on our client’s behalf to monitor manually. It works much better than digital monitoring. There are far too many cases of brand use that are missed when digital monitoring is used.

It’s a mistake to not include manual monitoring in your long-term Compliance Action Plan. Manual and/or digital monitoring efforts can be more effective when utilized simultaneously. Digital monitoring is not enough. It cannot find the multitudes of violations that manual monitoring does. It takes a smart person to do this job efficiently.

Establishes Sanctions:

The Compliance Department is tasked with assessing the issues and implementing sanctions or consequences for the actions of their distributors. Included in your policies right now are sanctions. It would be smart to review what’s been established in your Policies before a Compliance issue comes up.

Sanctions can include:

• Monitoring a distributor’s conduct over a specified period of time to assure compliance.
• Issuing a written warning or requiring a distributor to take immediate corrective action.
• Imposing a fine which may happen immediately or withheld from future commission payments.
• Withholding commission payments until the Distributor provides adequate assurance of future compliance. Suspension from participation in Company events, rewards, or recognition.
• Suspension of his or her Distributorship and position for one or more pay periods.
• Involuntarily terminating the Distributor Agreement and position.
• Any measure the Company deems feasible and appropriate to resolve injuries caused by the Distributor Policy violation or contractual breach.
• Legal proceedings for monetary or equitable relief.

Each company can define its own policy sanctions based on their culture and what is considered reasonable consequences for their violation. Remember “sanctions” have already been established in your policies. Some companies even define what violations hold what
sanctions long before any actions are necessary. It is up to the company to equally issue sanctions based on behavior. In some cases, when a more serious one is violated, it may be worthwhile to have your attorney advise the most legally advantageous sanctions for the situation.

It may be hard for an owner to hand out sanctions to their highest leaders or distributors who have become good friends over the years. This is another powerful reason to have a Compliance Department.

Provides a Process for Escalation:

A Compliance Department indicates the company has Compliance Standard Operating Procedures (SOP) which clearly outline the process for handling a violation from start to finish. The SOP’s indicated by a flow chart the exact path of how a violation is treated. Each step is as important as the next and cannot be eliminated. The violation intake process provides for initial documentation of the issue using the 5 W’s (what happened, when, to who, where and if known, why), and as much information as possible is collected regarding the issue or case.

Once a case has successfully passed intake, it is vital to gather evidence supporting the case. Do NOT take the word of the reporter as gospel. An effective compliance team will research and request supporting evidence. Evidence can be an email, a messenger, a letter, a text, or a phone recording. Anything that substantiates the claims is required. The last
thing you want is a “he said, she said” situation.

Once a violator has been notified repeatedly and does nothing, it may be time to escalate the case to your legal team. It’s prudent to escalate cases involving fraud, theft, criminal behavior, extreme poaching, and more. The Compliance Department is always the entity that escalates the process resulting in enforceable consequences.

Escalation to an attorney requires a case history to provide documentation. Give your attorney all the information you’ve collected on the case in writing. The Compliance Officer will stay with the case. If it escalates, they stay in the loop and continue providing a written report for the
attorney. Some attorneys may want the Compliance Officer to send one last letter from the company before the legal team takes it’s shot.

To Educate:

Once a Distributor clicks the “Agree” button pertaining to Company Policies, they rarely think about those policies again. In the eyes of the regulators, the company is responsible for providing compliance training to the entire field team.
Virtual compliance training is becoming increasingly popular as a necessary part of your compliance strategy. More and more companies elect to provide a customized compliance training course for distributors. Many require the successful completion of this course to be authorized as a Distributor. The secret to compliance in the direct selling industry is continuous monthly compliance training for all distributors. Randomized testing is highly recommended.

Training can come in a variety of methods. When a new Distributor signs up, a welcome letter can include a sentence about compliance responsibilities and introduce the Compliance Course.
When the new Distributor enters their website back office for the first time, a pop-up may appear stating the Compliance Course is a requirement to become a Distributor. Some companies provide a “click here video” that outlines the company’s compliance policies. The basic
information is taught – no URL’s with the company name which violates the company trademark; no emails with the company name in it unless it is part of the self-replicated name. Some important things taught during the initial phase of compliance training include, how to recognize and avoid making claims, disease and drug claims, and income claims. It’s time-saving to teach the poaching and cross-recruiting policies. These issues can pop up and result in a
Distributor being terminated. It is only fair they’ve been educated about the perils of drug claims, income claims, poaching, and cross-recruitment activities before it becomes an issue.
Training should be broken into snippets taught in bite-size pieces. It’s easier to remember, and it provides an opportunity to reveal why the violation is critical to the importance of a viable organization. When Distributors understand why the training is much more effective.

Prepares and Maintains Compliance Documentation:

Documentation, documentation, documentation is as important and maybe more so than location, location, location is to Real Estate. Documentation often wins cases. Sometimes it is difficult to get a Distributor to see their wrong ways. Even when considering the evidence, some leaders deny guilt and place blame on others for their transgressions.
In the case of a regulatory investigation, preparation is key, and the department must keep accurate, easily retrievable documentation which provides evidence of an active working Compliance Department. It is negligent to have Policies and Procedures in place but do nothing to enforce them. In fact, it’s almost worse than having no
policies at all.

In conclusion, we’ve identified numerous reasons for having a “robust” Compliance Department. The company that can easily prove the existence of an active Compliance Department is in far better shape when a regulator knocks on the door. An active Compliance Department is key, so
don’t overlook the power and safety of having one.

Donna Marie Serritella
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