Corporate compliance programs can take a novel approach to creating revenue-positive value by showing that consumers are willing to pay more for products from companies with robust compliance, which can also benefit B2B companies
Corporate compliance functions have always been fighting for status and stature within their own companies. Most programs frame their value in terms of liability avoidance, reducing cost, or mitigating the risk of future costs. Discussions about how to prove the value of compliance have endured, since it has historically been seen as a cost center and as a guard against future liability.
However, that thinking may be shifting with a novel approach to understanding compliance value that was outlined in a recent paper, Valuing Corporate Compliance, by Todd Haugh and Suneal Bedi, both professors at Indiana University’s Kelley School of Business.
The idea for the collaboration between Haugh and Bedi started over an informal chat when Haugh was sharing the challenges of demonstrating how corporate compliance programs can create revenue-positive value, and Bedi providing a probable solution that drew on his PhD in marketing, the pair says.
Specifically, Bedi brought his expertise in choice-based conjoint, a sophisticated marketing analysis technique, to collaborate with Haugh. “This method discovers what customers care about when they’re buying a product, what features of a product they care about, and how much they’re willing to pay for those features,” Bedi says, adding that it would show “if they care about compliance and whether they’re willing to pay more for compliance.”
Making the case for compliance’s revenue-positive value
While companies have traditionally viewed the value of compliance through a liability avoidance lens, the work of Haugh and Bedi is revolutionary because they show the value of compliance from a true revenue perspective in an empirically rigorous way. Their work includes such findings as:
Consumers are willing pay more for compliance — “What we found in this study was that people care about compliance, and buyers are willing to pay more for it. They’re willing to pay a price premium for a product that comes from a company that has a robust compliance program,” Bedi explains.
Linking compliance programs with the products is good business — Their study also reveals that the more likely the compliance program matches some intuitive aspect of a product, the more customers are going to care. For example, when considering their purchases of mobile phones, consumers care about compliance programs related to privacy and cybersecurity than they care about a compliance program related to health and safety, the study indicated. However, when considering a manufactured product, such as a dining table, potential buyers care a lot more about employee health and safety as opposed to privacy and cybersecurity.
Compliance is worth more than a pretty phone — The third key insight coming out of Haugh and Bedi’s work is that customers care about compliance more than they care about other features of a product that companies routinely tout. In the context of mobile phones, for example, people cared more about privacy and cybersecurity compliance than they did about the color of the phone, according to Haugh and Bedi. Manufacturers of mobile phones spends thousands of dollars on advertising new colors, but what Haugh and Bedi’s empirical method shows is that manufacturing companies’ marketing dollars would go farther if they invested that money in compliance and marketing efforts that underscored that fact. “This idea, that some attributes of a product that companies talk a lot about might not be as valuable as a robust and effective corporate compliance program, is critical,” Haugh says.
Another transformative aspect to Haugh and Bedi’s work is that it enables compliance leaders and professionals within a company to be thinking about offense and producing revenue-generating customer value, rather than just playing defense by avoiding liability. This new way of thinking is a force multiplier, Haugh explains.
Companies whose customers value compliance and begin to talk “credibly about what they’re doing around compliance, will be rewarded based on how their buyers make purchases. This leads to more revenues which leads to more investment in compliance,” Haugh says. “This finding has big implications for the compliance profession going forward.”
Transferable lessons for B2B companies
Haugh and Bedi focused on business-to-consumer (B2C) companies for their initial research, but both underscore there are important lessons for business-to-business (B2B) corporations as well. These lessons include:
B2B companies are upstream suppliers to end-use consumer products — While the main customers of B2B companies are other corporations, downstream, there is a consumer making a purchase, making those B2B companies a key partner in the supply chain of B2C companies whose main customers are consumers. For example, makers of mobile phones have suppliers that provide materials and components of the phone. If customers care about environmental and health and safety compliance, it is not that difficult for them to figure out what companies are in the supply chain. As a B2C company with customers who care about the environment and compliance, there is strong motivation to demonstrate that they are doing business with reputable and ethical suppliers, according to Haugh and Bedi.
Employees might care, even when customers don’t — Bedi also points out that even if a company’s customers may not care that much about compliance at large, it is highly likely that its current and future employees do. In fact, according to Deloitte’s 2024 research on Gen Z-aged workers, 55% of Gen Z prospects research a company’s environmental impact and policies before accepting a job, and 44% of them have rejected employers due to their environmental impact.
Using good compliance practices to gain large corporate customers — In addition, compliance in a B2B context is a way for a company in a competitive landscape to differentiate itself. In fact, a small company desiring to gain big companies as customers, can distinguish itself from competitors by touting its robust compliance programs.
Linking corporate compliance to employee value proposition
Haugh and Bedi are considering in their next phase of work how the choice-based conjoint method can be used to measure whether employees are more willing to work at a company that cares about compliance. Quantifying the value of reducing employee turnover has great potential for a revenue-positive impact because corporate spending on talent is usually one of the top three areas — alongside technology and real estate — of companies’ expenses.
Whatever area Haugh and Bedi explore next as pioneers in the emerging research area of valuing enterprise compliance, there is more than enough space for others to join in. Haugh notes that there are a number of potential strategic benefits to compliance, but he is not aware of anyone who has studied them in a real way.
“That is where we are headed next,” he adds.
