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Will New Governance Standards Affect Your Role?

April 3, 2009

The G20 meeting took steps to address the regulatory environment for financial services. Will these new standards remain limited to the finance industry, or will they influence broader standards?

 

Whether or not there will be increased regulation affecting the entire corporate sector remains to be seen. Industry groups, such as the UK’s Institute of Directors, are already mobilizing to push back against possible regulatory initiatives.

One way that companies may seek to reduce legislation is to take proactive steps in self-regulation. And an obvious area is the separation of  ‘poachers and gamekeepers’ within their staff. The G20 communique set up a Financial Standards Board and among the principles it will oversee is:

“Staff engaged in financial and risk control must be independent, have appropriate authority, and be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the firm. Effective independence and appropriate authority of such staff are necessary to preserve the integrity of financial and risk management’s influence on incentive compensation.”

It can certainly be argued that those within Legal, Procurement and Commercial / Contract Management are ‘engaged in financial and risk control’ – so we should start thinking about the ways this will change our role, our organizational alignment, our measurements, our standards of practice and our reward systems. We must also ensure that increased responsibility for good governance does not result in damaging or destroying the business.

An exclusive focus on compliance and monitoring would potentially inflict such damage because it would often crush innovation and change (and therefore we would be driving compliance with uncompetitive practices). So to protect our organization’s health, we must first initiate and / or approve the policies and practices that will ensure healthy and ethical competition; and then we can be confident that we are monitoring compliance with the right goals and objectives.

This is a critical shift for our community. It is one that several groups already exhibit – but they are the exception. That is why IACCM is so strongly focused on helping organizations understand and make the transformation to a world where risk management is a balance between opportunity and consequence. Those who attend the IACCM Americas conference in Orlando (April 23rd – 24th) will return well equipped to start their journey.

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