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I may meander but I'm exploring, not lost

May 7, 2008

Compliance - a matter of managing risks

Today I've been browsing the good stuff going on over at Unified Compliance Project whose aim, as I understand it, is essentially to help organizations find and exploit alignments between various compliance requirements, eliminating duplication and hence reducing the total amount of compliance effort required. For example, implementing an ISO/IEC 27001-compliant Information Security Management System (ISMS) should simultaneously satisfy most if not all legal requirements for information privacy controls (with no additional effort), and should at least partially satisfy governance requirements arising from SOX, in addition to miscellaneous business benefits as a result of having a best practice ISMS.

One of the issues I've been pondering relates to "mandatory" requirements and obligations such as those enshrined in laws, regulations and contractual terms. It seems to me that, despite initial impressions, compliance with "mandatory" requirements may not be a simple binary condition. For a start, in most cases, the requirements are more complex than that. It is conceivable for the organization to be fully compliant with certain parts of the requirements but not so for others. Furthermore, the extent of compliance with any one requirement is often subject to interpretation, either because the requirement is ambiguous (hopefully not!) or because the organization and whomever is assessing compliance (law enforcement, lawyers, auditors, regulators, management) have their own viewpoints and prejudices. Finally, there is a chance that noncompliance might not be detected, or even if it is, it might not lead to the worst case consquences often paraded by the compliance lobby.

It's the same with speeding laws. If I break the speed limit, even by 1 mph, I am strictly failing to comply with a mandatory legal obligation. In practice, however, it is extremely unlikely I would ever be stopped for 1 mph over because (a) there are insufficient policemen with radar guns to track my every journey; (b) their radar guns have tolerance limits; (c) my speedo has tolerance limits, and the police and/or prosecutors allow me some flexibility; (d) if I am caught, there's a chance I might talk my way out of it; (e) even if I am fined, I might escape justice by fleeing the country, or I might get off "on a technicality". The situation changes for every mph over the limit - as indeed do my chances of being involved in a fatal accident. I weigh all this up every time I drive. [And yes I make mistakes: I have been fined for speeding. I didn't flee the country, I paid up and "learnt my lesson".]

So, all of this is, in fact, a risk management exercise. I assess the threat (of being caught speeding), the vulnerability (how far over the limit I am going) and the impact (the fines, the grief).

Something like SOX can be treated in the same way. Management may consciously choose NOT to be totally compliant, assessing the risks like any other business decision. Maybe they will get away with it. Maybe they can present good enough excuses to the auditors etc. to escape the full force of the law. Maybe the commercial benefits of noncompliance justify it in purely economic, if not ethical, terms.

I haven't seen this kind of perspective discussed anywhere but I am not a compliance expert. Perhaps it's old hat and I've just stumbled across somethig that is already well known. Or perhaps this stuff actually happens but nobody is willing to acknowledge it openly? I'd be interested in your thoughts.