1.1 Defining the Compliance Profile

No matter what industry or the type of business an organization is engaged in, establishment of a corporate compliance structure is a must. A compliance structure or profile simply refers to identifying the laws and regulations that must be adhered to and the road map for ensuring compliance with applicable laws. Compliance is becoming more synonymous with conducting business no matter the industry or market in which a company competes. Regulatory compliance can range from those that apply to people management, from the viewpoint of human resource management, safety and health of workers while performing work, to protection of the environment. Recognizing that compliance for each company can be different depending on the mission of that company, the question that is important for each organization to contemplate is, what is compliance for my company? Compliance, simply put, is a company’s ability to identify, conform to and follow the rules and regulations that apply to them as they conduct business. The applicable rules and regulations form the basis of a company’s compliance profile. However, for some companies, it is not always easy to identify all the regulations that govern the ways in which they conduct business. In such cases, some organizations discover through regulatory inspections that they are not in compliance with a law or regulation that they have not even considered as a part of their compliance profile for the business. The compliance profile of a company is dependent upon various variables such as:

• The number of workers that a company employs
• The types of hazards that an employee can be exposed to during the performance of their tasks
• The type of potential emissions and releases to the environment
• The type of products produced
• The types of chemical products utilized while conducting business
• The type of waste or by-products produced from conducting business
• The state in which business is being conducted and the regulatory requirements specific to business conducted within that state

In addition to paying attention to the variables that can impact the structure of compliance, corporate leaders must also focus on the prevailing top compliance issues as they unfold. Keeping abreast of these issues provide an opportunity for a company to examine or assess compliance and the mechanisms used to address any of the applicable prevailing issues. These issues may include:

• Complexities encountered when managing risks for the enterprise
• Understanding and reducing the potential of regulatory noncompliance (Managing environmental risks falls within this category.)
• Managing changes in the information technology arena to include reducing the potential of cyber infiltration and attacks
• Developing and managing an effective internal audit program

Total compliance for a company means that they are conforming to all of the environmental regulations and laws. These laws and regulations can also be documented in permits or agreements that the company may have with the regulatory agencies such as Consent Orders (CO). To facilitate compliance, many organizations make use of environmental checklists, solicit the assistance of workers having the most knowledge of the operations that they are responsible for supporting, and hire environmental engineers, specialists or professionals who have been trained in environmental regulations. Environmental laws are legally enforceable primarily through the Environmental Protection Agency (EPA). However, the EPA does not typically respond to all environmental concerns as some environmental issues are handled by other federal, state or local agencies through delegated authorization agreements from the EPA. The EPA has in many cases provided enforcement responsibility to some state and local governmental agencies. When enforcement is delegated, these agencies have the authority to inspect and impose penalties for noncompliance that may include financial penalties or imprisonment for failure to comply with the laws and regulations. The cost of noncompliance for a company can also lead to increased inspections by regulatory agencies, tarnish a company reputation and instill the perception of being an organization that is willing to cut cost and quality and having little or no concern for workers and the environment.

1.2 Alignment with the Mission of the Company

When considering alignment of a company’s mission and compliance profile, two key questions come to mind. The answer to these questions can be important when it comes to gaining support from the leadership team and workers in supporting activities that will facilitate compliance even if they believe that some actions taken may not be viewed as significant in supporting business practices and perhaps even hindering productivity. Why is it necessary for the compliance profile of a company to be in alignment with the mission of the company? How important is it for this alignment to take place? The mission of a company gives direction and purpose to that company. A well-documented mission statement is short and defines the goal, customer base and the products or services they will provide. Once the mission of the company is flushed out, its leadership must ensure that the organization is structured in operable units that will effectively support the mission, create cohesion and assist the organization in reaching its peak performance. The term peak performance is defined as the point at which an organization has implemented streamlined processes that has a positive impact on the business, reduces rework, the amount of waste generated and disposed of, human error is anticipated and managed, and employees are engaged in the business (Allen, Alston, Millikin Dekerchove, 2019). Organization systems are recognized as a system that is connected to assisting in the completion of tasks and activities that support achievement of the goal and mission of an entity. As such, when developing these systems, it is important to take a strategic view and ensure that the system used is in alignment with the mission of the company.

The mission has a great bearing on the type of laws that are applicable to the business and the compliance posture that a company must assume. Therefore, environmental compliance is not feasible unless it is strategically aligned with the mission of the company. For example, Company Y is in the business of producing a solvent that yields waste by-products that are released through a stack into the environment. In order to operate the process, the company will need to submit an air permit application to obtain an air permit. The permit and its content are legally binding and must be followed just as they would for any environmental regulation. If the process did not emit organic solvent vapors into the air, an air permit would not have been necessary and the compliance requirements that come with an air permit would not have been necessary. The company must also ensure compliance with waste and other applicable regulations. Consider another scenario for Company X whose mission is to produce a product that is considered relatively nonhazardous, producing no emissions to the air, with some waste generated from the by-products. Company X typically will not be required to obtain and implement an air permit, although they must comply with waste regulations. The point here is that environmental compliance considerations should begin at the forefront of business development, and the compliance posture is significantly dependent upon the business practice and its potential impact on people and the environment as well as the state in which the business is performed.

1.3 Organizational Structures That Enable Compliance

Organizations today face unprecedented levels of complexity having to operate in dynamic environments with a knowledge-based culture and fast-paced economy. Many customers are seeking products that are unique and companies that provide exceptional service and quality, and they are no longer satisfied with what may be considered as standard products. The knowledge age is forcing leaders to focus on coordinating resources in a way that requires managing knowledge capacities as a means to compete. Mobilizing knowledge resources provides an organization with the ability to provide high-value services and deliver novel solutions to solve problems (Yoo, Boland, Lyytinen, 2006). These knowledge workers are critical in the development of exceptional services and non-standard products.

There are different ways that an organization can be organized into an effective functioning system that supports both the needs of the organization and inclusiveness among workers and leadership. In an organization, many rules and regulations must be applied and followed by all to ensure compliance. These regulations include those that are applicable to, for example, financial matters, human resource and environment safety and health. Recognizing that all structures have the ability to enable compliance to some degree, there are some structures that can better enable and support environmental compliance.

Organizational structure gives members a clear guideline on roles and responsibilities and how to proceed with getting work accomplished, and it can also serve as a means to bind members together as they work to accomplish a common goal. The CEO or the president has the responsibility to structure the organization so that it can handle all of the problems they will face and provides a support path to conduct business effectively and with the maximum level of productivity feasible. In structuring the organization, considerations must be given to the issues that the organization may face in the future and to a recognition that changes in one part of an organization will impact other areas of the organization. Positioning an organization for success requires continual effort in analyzing internal efficiency and external uncertainties that may be posed in the future (Cyert, 1994). There are four types of organization systems that are used fluently today: functional, divisional, matrix and flat systems. These systems are discussed in further detail in Sections 1.3.1–1.3.4.

1.3.1 Functional Organization Structure

Functional organization systems structures group people based on their area of specialization and assign leadership to those having expertise in the same area. The grouping of people is placed in units referred to as departments with a department manager, who is held accountable for performance of the department. Effective utilization of workers is expected since the manager understands from a technical standpoint the tasks performed by workers. Having managers with technical understanding is expected to help the organization achieve some level of effectiveness in obtaining its objectives due to their knowledge and familiarity with the tasks that need to be performed. An example of a functional system is shown in Figure 1.1. Each unit is responsible for handling one aspect of ensuring success of the product or services provided, for example human resources, engineering, infrastructure and services, information technology, environmental compliance, etc.

The functional organization structure is effective for organizations that have ongoing operations and produces standardized products. Some benefits and pitfalls of a functional system are listed in Table 1.1.

TABLE 1.1
Benefits and Pitfalls of Functional Systems

Potential Benefits	Potential Pitfalls
Assist in controlling consistency of quality and performance	The departments often function as silos disconnected from the rest of the company
Having all authority and decision-making, including budget and resource allocation, remains with the functional manager	Communication flows vertically through department heads to the president or CEO
Minimal time and funds spent on training as tasks and business functions change infrequently	Employees may become distracted and lose their questioning attitude as a result of performing the same tasks over time
Employees report to one manager	Compartmentalized knowledge with little opportunities to expand knowledge and opportunities beyond skills needed to support the department
No duplication of responsibility and efforts	The interdepartmental communication can cause employees to lose touch for what is happening in the company as a whole and may not understand how the work they perform contribute to the overall mission

 

The environment manager reporting to the environment safety and health manager (ES&H) is a common reporting line and provides direct access to the rest of the safety and health functions as there are times when these functions have to work closely together to ensure that environmental policies are implemented effectively. However, regardless of the reporting structure, the group that has direct responsibility to facilitate and enable compliance should report at a high level within the organization and should have direct access to the senior leadership team and the president or CEO. Some of the benefits and pitfalls that may be encountered in flowing down environmental requirements and facilitating compliance in a functional organization are documented in Table 1.2.

TABLE 1.2
Flow Down of Environmental Regulatory Requirements in a Functional System

Potential Benefits	Potential Pitfalls
Groups requiring knowledge in environmental compliance are easily identified	Employees may become distracted and lose their questioning attitude as a result of performing the same tasks over time. Therefore, they may not keep abreast of environmental regulatory requirements or report issues to management as they occur
Flow down of environmental regulatory requirements simplified due to the departmentalized structure	Less eyes and perhaps attention to issues that can lead to environmental noncompliances
Fewer people to train and track qualification requirements
Supervision accountability easily to identify and assess
Smaller number of people and area involved in assessment of environmental matters

 

The functional system may be a great choice of ease in implementing an environmental compliance program within a company; however, in today’s environment, it may not be the structure of choice for organizations that have a variety of business lines or for organizations that are interested in research and development and other evolving technological ventures.

1.3.2 Divisional Organization Structure

A divisional organization system is designed by splitting up an organization into semiautonomous areas referred to as division. Each division consists of a complete set of functions that are essential for achieving goals, as shown in Figure 1.2. The divisional system makes use of the functional system and groups it into divisions to support the product or market in which they compete. The divisional organizational system is extremely beneficial for companies that conduct business in different regions, markets or product lines.

The challenges and benefits involved in developing and implementing an environmental compliant program in a divisional structure are listed in Tables 1.3 and 1.4. Although not a complete list, the tables provides some issues that should be considered and leveraged or avoided in some cases.

TABLE 1.3
Benefits and Pitfalls of Divisional Systems

Benefits	Pitfalls
Each division is able to focus efforts on a specific product, service or market in which they compete	Higher operational cost for the company is expected because duplication of resources exists as each division is fully autonomous having all resources necessary for supporting each division or group
Facilitate business decisions and the coordination of activities among divisions to be made expeditiously by the local leadership team because they have complete autonomy for organizational matters	Each division will have its own strategic focus than may not completely support the goals of the company as a whole
Facilitation of a common culture within each division	The company may not be able to take advantages of economies of scales because purchases of goods are not typically integrated across the company
Development of knowledge and expertise in the products and services	Communication across the company is minimized
Places decision-making as close to the customer as possible	Operate in a silo with little or no collaboration with other division employees within the company
Can respond faster to changes in the market as decision-making is localized

 

TABLE 1.4
Flow Down of Environmental Regulatory Requirements in a Divisional System

Potential Benefits	Potential Pitfalls
Quick flow down of information and changes in environmental regulatory requirements	Regulatory flow down may be inconsistent due to several environmental departments operating in silos
Common compliance culture within each division	Potential differences in regulatory interpretation across the company and flow down information
	The perception or acknowledgment of having too many resources across the company and risk reduction in force during critical budget times
	Compliance culture different across the company
	Environmental compliance costly across the company due to duplication of resources and efforts

 

1.3.4 Flat Organization Structure

A flat organizational structure is an organization system that does not have layers of management between the company’s grassroots staff members and senior managers. In these structures, employees usually report to the president, the CEO or the highest level of leadership instead of reporting to a lower level of management that then reports to the senior executive. Flat organization structures are not common for medium- to large-size organizations. This type of structure is typically effectively utilized in small or start-up companies. An example of a flat organization structure is shown in Figure 1.4.

Environmental compliance in small organizations tends to be less complex and easier to achieve because of the absence of organizational layers of management and also because these organizations tend to have small groups of employees. The ES&H or the environmental compliance manager and subject matter experts directly report to the top level of management and have fewer organizations to consult with and enable compliance to regulations and laws. In addition, it is possible that since these organizations tend to be small, the environmental compliance posture will include a limited number of laws and regulations, depending upon the business profile and functions. In other words, the simpler the structure and business functions, the easier the compliance (Tables 1.7 and 1.8 ).

TABLE 1.7
Benefits and Pitfalls of Flat Systems

Potential Benefits	Potential Pitfall
Cost efficient, having fewer layers of management	Employee retention may be difficult due to lack of job change opportunities and promotions
Clear and consistent communication. Miss communication is minimized	Management can lose control if organization expands having a large ratio of employee to manager
Expedited decision-making

 

TABLE 1.8
Flow Down of Environmental Regulatory Requirements in a Flat System

Potential Benefits	Potential Pitfalls
Easier flow down and implementation of environmental requirements since requirements is expected to be less for a small organization with a smaller business portfolio	The perception that compliance poster is insignificant
Fewer employees needing training and retraining	Minimal staffing to address compliance issues
Less regulatory inspections from regulators	Less environmental knowledgeable staff for regulatory interpretation and flow down
Less internal inspections to verify compliance

 

No matter what organization system is utilized to organize a company, environmental compliance must be at the forefront and not an afterthought. When environmental compliance is planned as an afterthought, one can expect difficulty in compliance and thus potentially expect fines to be levied when not in compliance with the applicable laws and regulations.

1.4 Applied Learning

Review the case study and respond to the questions that follow.

References

1. Allen, Patricia Melton, Alston, Frances E., & Dekerchove, Emily Millikin. (2019). Peak performance: how to achieve and sustain excellence in operations management. Boca Raton, FL: CRC Press/Taylor & Francis.
2. Cyert, Richard. (1994). Positioning the organization. The Institute of Management Sciences, 24(2), 101–104.
3. Harris, Milton & Raviv, Artur. (2002). Organization design to organization designing. Management Science, 48(7), 853–865.
4. Yoo, Youngjin, Boland, Richard J. Jr., & Lyytinen, Kalle. (2006). From organization design. Organization Science, 17(2), 215–229.