Achieve global success through effective governance and compliance
The financial crash of 2008, described at the time by the International Monetary Fund as being the worst financial crisis since the Great Depression, revealed, among other things, just how globalised the world had become. The calamitous crash began in the US, where the unsustainable and unstable system of mortgage lending finally imploded sending shockwaves throughout the rest of the world. It very nearly brought down the global financial system.
No organisation was left unscathed and in the aftermath, and since then, from crisis to recession to recovery, business leaders have been keen to transform – overhaul even – the way they work internationally. Accordingly, good governance and compliance has emerged as an executive-level area of consideration and is now, for many enterprises, an effective instrument for upholding the integrity of their business.
In this article, we take a look at why, more than ever, it is vital that organisations invest in and develop a robust, comprehensive and globally-oriented approach to governance and compliance.
The global backdrop
The international landscape is one that is characterised by greater economic interdependence, whereby the fortunes of one country are tied to the successes and failures of another. As nations cement existing trade agreements and develop new ones, it creates more overseas opportunities for businesses. Alongside that there are even greater demands. Business leaders certainly have a lot on their plate.
As Deloitte noted in its 2014 paper Risk Intelligent Governance: “Events of the past decade – including the collapses of high-profile companies, economic volatility, and growing regulations and guidelines – have placed boards under greater scrutiny from regulators, shareholders, the media, and analysts. Such scrutiny has led to rising expectations for improved governance and risk management.”
Why you need good governance
Without good governance, you lose transparency. This, in turn, increases risk because you can’t effectively control what you can’t see (or what you don’t know about). The fallout of this can be severe. Barclays, for example, was ordered to pay £38 million in damages to the Financial Conduct Authority in 2014 for “client account failures”.
Moreover, because of globalisation, not only is there more risk to contend with – such as political instability, potential economic volatility – there are also more laws to be compliant with. Adhering to all these rules and regulations, to say the least, is challenging.
Good governance helps to manage this new level of responsibility, with in-house compliance experts, for example, being on hand to check that everything is above board. This last thing you want is to fall foul of laws in another country.
Knowing the risks to good governance
Working out what potential risks your company faces is vital for establishing an effective strategy that fosters a culture of good governance. Executives need to be at the heart of this, encouraging everyone in their company to appreciate and understand how issues can emerge and the steps they need to take to mitigate them from happening.
The more aware people are of potential risks, the more visible problems become throughout the company. In such an environment, organisations are more capable of resolving things swiftly before they can cause real and lasting damage.
What has to be remembered all along is the need to look at things from an international vantage point. As Kirk O. Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University, touched upon in a 2011 lecture, the “growing globalisation of business and business operations” constantly changes the framework in which businesses operate.
Unfortunately, he went on to say, businesses still struggle to adapt to this new reality. In the past, for example, American companies would apply their western codes of business to their own operations in other parts of the world, including China.
“Many Chinese companies objected to this approach, arguing that the western codes did not meet the local conditions in China,” Mr Hanson said. “In many cases, the western codes were very poorly implemented in China and other countries, even in a western company’s own operations. Many neglected to even translate their codes into the Chinese language.”
Developing a global approach
While English remains the dominant business language, there is, nevertheless, more of a need for organisations to have multilingual documents, be it to do with codes of conduct, contractual information or audit reports. At a very base level, it allows for clarity at all levels of a business, irrespective of what country stakeholders are in.
Additionally, it is increasingly impossible for business leaders to operate a successful, inclusive and internationally compliant enterprise through a single language. There are far too many barriers to this and risks also. Culturally ambiguous terms can be misread and key details can be found to be incompatible with other legal systems.
As J. Evans Rice, a Hogan Lovells partner, has explained: “What we try to do — and we’ve had real success with this — is to have in place lawyers who are experienced investigators and experienced with local regulators in key enforcement districts around the globe. The issues in each country are very different, and there’s no replacing on-the-ground expertise.”
Without proper expert scrutiny and advice – through legal translators, for example – governance and compliance leaders can end up falling short of their remit and land their organisation in serious trouble with regulators at home and abroad.
Being confident that all information is factually correct across multiple languages – and in compliance with numerous regulatory and legal systems – can be achieved through a long-term partnership with a language translation provider. Experts within such an agency can help organisations navigate around this nuanced area with the kind of authority that offers all stakeholders peace of mind.
A forward-thinking approach to governance
It’s a markedly different world to what it is was like a decade ago. While optimism is spreading and businesses growing more confident by the day, there remains a sense of caution. No-one wants to create the conditions that led to the financial crisis of 2008.
Yet, at the same time, businesses are eager to grow and boost their bottom lines. This is why more and more organisations are beginning to expand overseas. With this comes benefits and hazards. To ensure that opportunities are seized in a risk-free way, you must elevate governance and compliance to a boardroom level agenda item.