Andrea Serna Castano, an environmental and health economist, emphasizes the need for corporate compliance to uphold health, environmental, and labor standards. A forthcoming systematic review by researchers from the Institute of Policy Research (IPR) highlights gaps in compliance research and calls for predictive models. Key factors include company size, leadership diversity, and enforcement.
Andrea Serna Castano is an Applied environmental and health economist with experience in experimental design, data analysis, and interdisciplinary research. Currently a Research Associate at the University of Bath's Institute for Policy Research, where she collaborates on projects related to food regulation, sustainability, and Commercial Determinants of Health. With an academic background, including a PhD in Economics from the University of Rome Tor Vergata and an MSc from the University of Copenhagen, Andrea has contributed to projects in environmental economics, health, and digital transformation across various international institutions.
In an era where corporations hold economic influence rivalling national governments, effective business compliance with regulatory frameworks and policies is essential for safeguarding ethical, environmental, and social standards. Global Justice Now reported in 2018 that "69 of the top 100 economic entities were corporations rather than governments." These entities, along with smaller businesses, play a significant role in addressing global challenges such as climate change, health, and labour conditions. The industrial sector, for example, is responsible for 25% of global carbon dioxide emissions. Additionally, private sector activities are linked to a third of global deaths, and 50% of non-agricultural employment globally is informal. Effective regulation is essential, yet the outcomes heavily depend on business compliance.
This blog explores key insights from a systematic review of business compliance studies in developed economies, highlighting how targeted policies can create a more balanced regulatory landscape.
Why Compliance Matters More Than Ever
Modern businesses operate within an increasingly complex web of local and global regulations. Yet, despite these frameworks, breaches persist, as seen in cases like the Abbott baby formula scandal in the US, which tragically resulted in infant hospitalizations and fatalities due to regulatory non-compliance. Such instances underscore the urgency for effective policies that incentivize compliance to protect both public welfare and quality standards.
A forthcoming systematic review of 145 quantitative studies done by researchers from the Institute of Policy Research (IPR) offer valuable insights into the factors that shape business compliance in developed economies, identifying critical policy areas where action can make the greatest impact. The study explores three primary questions:
- What are the main areas of business compliance research, and what are the gaps in our understanding of these areas?
- What are the most used data sources and modelling strategies in business compliance research, and how do these approaches impact the quality and scope of the research?
- What are the most consistent and significant factors influencing business compliance behaviour across various studies, and how do these factors differ depending on the specific area of compliance?
By addressing these questions, policymakers can better understand the key factors influencing compliance and tailor their approaches to maximize regulatory effectiveness.
What are the main areas of business compliance research, and what are the gaps in our understanding of these areas?
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (Guidelines) are recommendations from governments to companies to address the negative impacts that business operations can have on "people, planet, and society". Introduced in 1976, they provide a framework of topics in which businesses are expected to follow certain standards. They have 9 categories of compliance: disclosure, environment, taxation, employment, consumer interest, bribery, human rights, science, and competition.
Seventy percent of the studies included in the systematic literature review were concentrated in three compliance categories: disclosure, environment, and tax avoidance (Figure 1). In contrast, fewer articles address consumer interest, anti-bribery, and human rights and there was no coverage of science and competition. The OECD Guidelines highlight these areas as vital for responsible business conduct, yet few studies have examined them comprehensively. Additionally, more than 60% of the studies drew on datasets from countries in North America and Europe, with limited representation from other developed countries, leading to a narrow view of compliance in certain areas and regions.
Governments and academic institutions should invest in research that addresses these underexplored areas. Prioritizing studies on consumer safety, anti-corruption, and labour rights, technology and competition could uncover specific strategies to enforce standards in these areas effectively.
What are the most used data sources and modelling strategies in business compliance research, and how do these approaches impact the quality and scope of the research?
Data accessibility emerged as a major issue in the reviewed studies. Around 71% of studies rely on secondary data, yet only 25% of these sources are openly accessible (Figure 2). In the absence of transparent data, it becomes challenging to conduct compliance assessments and enforce regulations effectively. The review highlights that many studies depend on subscription-based datasets, limiting both research scope and public scrutiny. Policymakers should promote open-access databases that provide comprehensive information on corporate compliance. Such initiatives would enhance transparency and facilitate collaboration among researchers, regulators, and other stakeholders.
The study also underscores an over-reliance on correlation-based models, with 60% of reviewed studies focusing solely on correlational objectives and while correlations can provide insights, for more policy-relevant research, there is a need for more studies on prediction and causality. To improve policy outcomes, researchers should employ predictive and causal models that allow for more robust analysis. Machine learning models, for example, could predict compliance patterns based on complex datasets, enabling regulators to proactively address non-compliance risks. And causal models are an essential component for designing effective policies.
What are the most consistent and significant factors influencing business compliance behaviour across various studies, and how do these factors differ depending on the specific area of compliance?
By analysing the factors that most significantly impact compliance, the review reveals several key variables that could inform targeted policies. Across topics and methodologies, the articles analysed consistently incorporated multiple variables to assess the level of compliance. We grouped these variables according to the factors mentioned by Adams: corporate characteristics, which contains size, industry, financial variables, price, and so forth; general contextual factors, which includes local and economic context, stakeholders, and the political aspect; and internal context, which involves leadership, special reporting committees and behavioural elements like identity and social norms. We divided these factors in six categories illustrated in Figure 3 with the main variables included in each.
The variables that have most consistently, and significant influence compliance literature come from: corporate characteristics, leadership, enforcement, and the local context.
- Corporate characteristics: Larger Firms Tend to Comply More Frequently
Firm size is one of the strongest predictors of compliance, with larger corporations more likely to adhere to regulations. This trend may reflect larger firms' ability to allocate resources for compliance or a higher public visibility that deters non-compliance. Smaller firms, meanwhile, may struggle to meet regulatory standards due to limited resources. Establishing support programs for small and medium enterprises (SMEs) could help them meet compliance requirements. - Leadership: Leadership demographics and Governance Impact Compliance
Governance factors, such as having special audit committee and gender diversity in leadership, correlate positively with compliance levels. Independent boards can better oversee regulatory adherence, while diverse leadership teams bring broader perspectives, reducing compliance risks. - Enforcement: Clear Rules, Institutional Stability, and Effective Oversight
Strong enforcement mechanisms, a high level of rule of law, and targeted policies for various compliance issues are essential for maintaining high compliance rates. When regulations are clearly defined and consistently enforced, businesses have a better understanding of the standards they must meet. Additionally, institutional stability characterized by reliable oversight bodies and a transparent legal system encourages companies to invest in compliance efforts, as they are assured that the rules are not subject to frequent changes.
- The Influence of Local Context
Local factors, social capital, and level of education, can affect compliance. In regions with high social trust, higher level of education and economic stability, businesses are more likely to follow regulations. Policies that build social trust, such as community engagement programs and transparent government practices can encourage higher compliance rates.
There is a caveat to these variables, and it is that they are that ones that have been more frequently included and where data is more available. Behavioural variables like past behaviour and social norms were significant in 27 of the 31 articles that included them, but there is a need for more research see if this trend holds as the literature expands.
Conclusion
Key takeaways for policymakers include:
- Prioritizing Open Data Initiatives: Encourage open-access data to facilitate comprehensive compliance research and analysis.
- Expanding Predictive Analysis: Invest in predictive and causal research to identify compliance patterns and prevent regulatory breaches.
- Supporting Small Businesses: Provide resources and financial assistance to SMEs to help them comply with regulatory standards.
- Enhancing Governance Codes: Promote governance frameworks that emphasize independent oversight and leadership diversity to improve corporate accountability.
In an interconnected world, business compliance affects more than just the bottom line—it influences social stability, environmental health, and public trust. As policymakers continue to refine regulatory frameworks, insights from compliance research can help create policies that are both effective and adaptable to the realities of modern business. This review emphasizes the need for accessible data, stronger analytical models, and policies tailored to diverse industries and organizational sizes. With these strategies, governments can strengthen the regulatory landscape, reducing risks and creating a fairer, more transparent business environment.
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