Compliance refers to the observance of legal requirements and internal company guidelines. It ensures legal protection and promotes the trust of business partners and customers.
In the context of a company, compliance comprises special measures that ensure that the management acts both in accordance with the law and in line with high ethical standards. These measures aim to uncover potential violations of laws and guidelines or, even better, to prevent them from happening in the first place. They can be implemented in the form of internal rules and guidelines, but can also be determined by legal requirements.
As a rule, contracts are the central control instrument for adhering to compliance guidelines. They often contain explicit provisions and criteria that define the way in which business processes are to be carried out in order to minimize compliance risks. From data protection agreements and confidentiality obligations to delivery and service conditions, contracts define the specific obligations and rights of the contracting parties.
A recent study by Drata shows that 91% of the organizations surveyed plan to take measures for continuous compliance implementation in the next five years. Furthermore, 87% of organizations report negative impacts due to inadequate compliance structures. This ranges from financial penalties and reputational damage to operational restrictions.
While the impression is often created that contract compliance is limited to regular audits, KPI tracking and keeping logs, the spectrum is actually much more complex. An effective compliance strategy includes both proactive and reactive measures. These include risk analyses, training for employees, ongoing monitoring of contractual relationships and the implementation of technological solutions for automating and monitoring contracts.
Adherence to compliance requirements is not only an organizational obligation, but is also regulated by law. In Germany, the German Corporate Governance Code serves as a central set of rules that defines the principles of good corporate governance and thus creates the basis for ethical and responsible behavior in companies.
In addition to these general regulations, there are also internal guidelines drawn up by companies themselves to define their own standards and principles. In addition, depending on the industry and business area, special rules and regulations may apply to ensure that the specific risks and requirements of a sector are taken into account. This interplay of national, international, internal and industry-specific regulations forms a complex and multi-layered set of rules that determines compliance in companies and requires constant attention.
Potential compliance violations can range from minor offenses to serious breaches of the law. This starts with non-compliance with legal regulations and internal company guidelines and extends to serious offenses such as money laundering and antitrust violations. In the context of modern business practices, violations of data protection regulations, IT security guidelines and labor law should be highlighted in particular.
Data breaches can include, for example, the improper storage or sharing of personal data, while IT security breaches can relate to the failure to comply with security protocols or unauthorized access to sensitive data. Employment law breaches, in turn, could range from discrimination in the workplace to violations of the Health and Safety at Work Act. Each of these categories poses specific risks and challenges and therefore requires an individual, multi-layered approach to compliance management.
Non-observance of compliance guidelines and legal regulations, also known as non-compliance, has far-reaching consequences. These can have financial and legal consequences and damage a company's reputation.
According to Article 83 of the EU General Data Protection Regulation (GDPR), fines of up to €10 million or 2% of a company's global annual turnover can be imposed. A practical example of this would be a company that stores customer data without sufficient encryption, resulting in a data leak. If the data protection authorities discover this, the company could be fined €10 million or 2% of its global annual turnover.
In the case of particularly serious violations, such as the deliberate sale of customer data to third parties, these penalties can even rise to up to 20 million euros or 4% of annual turnover
Apart from direct financial and legal consequences, non-compliance can also have a serious impact on a company's image. A loss of trust among customers, investors and partners can jeopardize long-term business relationships and have a negative impact on market value.
Furthermore, non-compliance can lead to a company being excluded from tenders and projects or license agreements and contracts being terminated. The loss of business opportunities can therefore have a negative impact on sales development.
Setting clear objectives and key performance indicators (KPIs) is the basis for successfully managing, monitoring and executing your contractual relationships. By setting precise targets, you can increase the efficiency of contract negotiations, carry out an effective risk assessment and ensure targeted contract execution. This is particularly relevant from a compliance perspective as it facilitates compliance with legal regulations and internal company guidelines.
ContractHero supports you in creating specific categories and fields that reflect your compliance-relevant metrics. For example, you can set up fields for compliance score, contract duration or annual review dates. This individualized view allows you to precisely record and continuously monitor KPIs, making it easier to systematically manage your compliance.
The lack of clarity about responsibilities within the company poses a significant risk of compliance violations. This is particularly true if unauthorized employees gain access to sensitive contracts, which in turn brings with it a multitude of other, sometimes serious problems and risks. In the worst case scenario, this could lead to these employees disclosing confidential information to unauthorized third parties, whether unintentionally or with fraudulent intent.
To effectively manage such risks and ensure compliance, ContractHero offers centralized rights management. Here, specific read and write permissions can be defined for each user at contract level. This not only creates clear responsibilities within the company, but also minimizes the risk of sensitive contract information falling into the wrong hands.
For further insights into the management of access rights, we invite you to watch our information video here: https://www.youtube-nocookie.com/embed/5yTu0C2OPkA?si=Wu2-gFdpA2CErSpM
An unstructured contract database can lead to serious compliance risks for your company. The challenges range from the inability to find relevant contracts and their terms in a timely manner to the risk of data breaches or unauthorized access to confidential contract data.
Our software offers a comprehensive solution with a centralized, secure and structured contract database. ContractHero is hosted on ISO 27001 certified servers. This not only ensures compliance with European and German data protection regulations, but also provides a robust infrastructure for the secure and structured storage of all your contracts.
Manual contract management processes are not only time-consuming but also prone to human error, which can easily be overlooked in the complexity of contract management and compliance. A single mistake, such as missing a notice period or failing to comply with a contractual clause, can have far-reaching financial and legal consequences.
ContractHero addresses these challenges through OCR text recognition and automatic contract analysis. Optical Character Recognition (OCR) technology enables scanned documents and images to be converted into searchable text so that key contract details can be quickly identified and categorized. Automated contract analysis allows complex clauses and terms to be captured and evaluated without manual review, saving immense amounts of time and increasing accuracy.
An effective compliance strategy must include the monitoring and evaluation of compliance performance. This includes regular internal reviews and external audits to ensure compliance with both internal guidelines and external legal and regulatory requirements.
ContractHero's multi-client capability allows centralized management of different companies, locations or teams. Thanks to these integrated functions, audits can be carried out in a focused, efficient and timely manner, allowing you to proactively identify potential weaknesses and minimize compliance risks.
When new laws are passed or existing regulations are changed, it is essential to update internal procedures quickly. This may include revising contract clauses, training employees on the new requirements or implementing new technology to monitor and comply with policies. A delay in this process can lead to serious compliance breaches and resulting penalties.
When contracts need to be amended and re-signed due to new regulatory requirements, ContractHero offers a fully integrated digital signature solution. This speeds up the contract amendment process as no physical documents need to be sent and contracts can be verified digitally.
ContractHero thus offers you a holistic, customizable solution for efficient contract management and for ensuring compliance in your company. By using our software, you can minimize risks, increase efficiency and ensure your company's legal compliance.
Book a free demo now and set a new standard for your compliance management.
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