In the US, Europe and in SA, regulators and legislators have come down hard on business as the full extent of corporate malfeasance has become apparent.
It certainly hasn`t been a good period for business as formerly grand corporations and brands such as Enron, WorldCom, Global Crossing, Ansett and Parmalat globally, and Corpcapital and Regal locally have been burned into corporate consciences and awareness.
No business driver has captured the attention of management worldwide the way that regulatory compliance has. Predatory executives have brought big business into disrepute and forced authorities to clamp down with onerous regulations and legislation.
The consequences are multifaceted and are literally changing the topography of business. Consider the example of Sarbanes-Oxley in the US. In the two years since it was brought into being, this piece of legislation has had a dramatic and enduring impact on the way in which business is conducted. As one of its provisions is that executives who knowingly misreport their results can be sent to jail, these executives are (understandably) becoming risk-averse, which is hampering the entrepreneurial instincts that helped make the US great.
These executives are demanding far higher rates of remuneration in exchange for the extra risk they must accept. Non-executive directors are becoming an endangered species, as people increasingly exhibit little appetite for the risk and the consequences of being accountable for their company`s actions.
Another consequence is the sheer cost of complying with Sarbanes-Oxley. A small army of lawyers, accountants and auditors must be retained, checking up on the process used in auditing, and on each other. The cost of these specialists must be borne by the company, which in turn passes it on to customers. Studies conducted in the US show that Sarbanes-Oxley compliance can add 3% to a company`s running costs.
Companies in Europe and elsewhere might view Sarbanes-Oxley as an American issue, and one which won`t impact them. But this would be short-sighted. Early indications are that Australia and SA will follow the US`s lead in promulgating similar legislation. And after the corporate governance disaster of Parmalat, can anyone doubt that Europe will experience a regulatory backlash?
But that is only Sarbanes-Oxley. Consider some of the other regulations which are tying up executives` time and bandwidth. They include Basel II, which relates to capital adequacy and operational risk management for financial service organisations. For them to comply with this, one of the most challenging of all regulatory requirements, they need to have a single, cohesive view of their data and the processes the data supports and fulfils.
Then there is IAS 2005, the cross-border compliance initiative which requires all listed EU companies to report their financials in line with the concept of fair value, or the principles of cash flow.
There are many more, such as King II, the Triple Bottom Line, and progress towards black economic empowerment targets.
Studies conducted in the US show that Sarbanes-Oxley compliance can add 3% to a company`s running costs.
Victoria Vaksman, MD, Tilos Business Solutions
CEOs, CFOs and their financial auditors are now required to certify not only the company`s financial statements but also the internal controls and financial processes that produced those statements. The regulations for process certification will become more inclusive over time - requiring companies to move from passive to active compliance, with annual process re-evaluation.
To address these requirements, companies have invested heavily in technologies such as corporate performance management and business intelligence to gain a coordinated, unquestioned view of all business transactions and interactions, so as to bridge the gap between their current understanding of their business, and what is required.
The need to link sound corporate governance to effective process control has never been more clear or pressing. As a result the business concept and technologies of business process management (BPM) are receiving greater attention.
BPM when designed, implemented and managed correctly, can have a profound impact on the business. In my experience, it is best fulfilled with process automation tools combined with document management capabilities and accompanied by a management information analytical framework. Such an approach can ease the task of compliance through enforcing consistency of process, aligned with centralisation of all appropriate documents and other information, with rules set up for integrity, security and auditability.
Combining and extending workflow tools and application integration allows companies to model and execute business processes, such as those for financial compliance, that span multiple internal systems, external resources and users including suppliers, partners, internal staff and customers.
For regulatory compliance, it can deliver real-time visibility of end-to-end processes through a digital dashboard of aggregated process data. This can mean the mapping of transactions from front-end systems to back-end financial systems to insure rapid access to financial truth.
Compliance requirements are critical challenges and significant company drivers for improved processes and automation.
If companies manage their processes and information in a visible and change-oriented way, they should meet or exceed customer and shareholder expectations. Regulatory compliance then becomes a by-product reflecting best practices that BPM builds into the company`s infrastructure.
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