• Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 3/7/2014

Effective business owners prepare for regulatory changes 

Effective business owners
No business operates in a vacuum. Economics and socio-political factors impact the trajectory of any business. Moreover the business climate of today is a rapidly evolving one, encountering and consequently requiring new laws and legislation on various and often unprecedented actualities.

Legislative and regulatory changes can be good or bad for business in the short and long term, but either way they necessitate a realigning of the company’s operations.

The good business owner prepares his or her organisation for such eventualities on an institutional level as well as a cultural one, knowing that they’re coming, even if some of the specifics are not always known. In this way, when legislative or regulatory changes occur, the company is able to adapt to them in a swift and relatively seamless manner.

At the outset of any business venture, when drafting your business plan, you consider the laws and regulations affecting your industry. The wise business owner also anticipates future regulatory changes, trying to assess the impact of these on aspects of the business such as compliance, IT, and tax, so as to work provisional strategies into the planning document.

Legislative and regulatory changes

In the words of Heath Tarbert, Partner at Weil, Gotshal & Manges LLP, “Regulation is becoming a driver of strategy. History tells us that periods of significant regulatory changes are usually followed by periods of increased M&A activity, new products, and other changes in industry dynamics.” This is not an environment for the traditionalist, nor the back footed.

The leading business owners of today have begun to integrate analyses of legislation and regulation into the business decision process and board discussions in a more structured manner, adapting to long-term legislative complexity by considering all facets of the business planning processes in light of regulatory matters.

Importantly, this shift repositions concerns about legislative and regulatory change from a compliance issue to an integrated part of overall business strategy. A 2012 KPMG survey, “The Impact of Legislative Changes on Business Strategies”, explored many of the strategic elements impacted by legislative and regulatory change.

Business planning processes

Over 250 executives and board members involved in the KPMG survey identified their top concerns about how legislative and regulatory changes are impacting their strategic planning elements. The following five concerns emerged as the most prominent, in order of most to least:

  1. Investment/innovation around new products and services
  2. Adjustments in tax planning or legal entity structures
  3. Search for merger and acquisition opportunities
  4. Invest in emerging markets or new geographies
  5. Improvement in information management and protection

The interplay between “investment/innovation” and the other top elements identified in the survey is as complex as the regulations that govern them. Either individually or taken together, the sheer volume of legislative and regulatory changes influencing these top five elements can be overwhelming.

As an example, research and development (R&D) tax credits or depreciation guidelines could influence decisions about the technique and timing of innovation and investing in a new product or market. Consequently, companies are now learning the value of creating a legislative “watch list”.

The impact of legislative changes on business strategies

Prioritising the top five to ten issues that may critically impact an organisation, its suppliers or customers into a watch list helps ensure that vital issues are not overlooked or simply relegated to stand-alone compliance discussions. The watch list can be an effective guide for applying a legislative lens to regular business discussions.

Rigorous use of it as a guide to anticipating business impacts can also help to keep efforts focused on the most up-to-date issues. In any adaptation to a legislative or regulatory change, you want your company not to lose momentum, public face, or revenue. You also want to avoid internal conflict, confusion or disorder.

So while changes to laws or regulations within your industry are occurrences outside of your control, the insightful business owner looks for what he or she can control – the business strategy – and wields that to not only mitigate but also, when possible, capitalise on any changes made within the prevailing legal environment.

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.

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