What does the new economic reality mean for business?
KEIZER Risk management
has moved to the top of the agenda, not only in the board room but at every
level of management. Business is getting back to the basics of evaluating
risk and reward and making sure they are properly aligned.
The changes in standards around disclosure and transparency are as dramatic
as the changes we’ve seen in the world economy.
HICKEY More regulation
is an obvious response to the economic crisis. Business has to get its
confidence back and engage with governments in this process or risk ending
up with inefficient regulation.
The economic crisis also has demonstrated emphatically that globalization
is happening — and that the global world brings new opportunities not just
for growth but for increasing efficiencies.
BUCKLE Governments
are experiencing the same kinds of challenges as businesses. The public
sector is now transforming itself through technology and outsourcing and,
unthinkable a few years back, is offshoring certain functions. KPMG firms
always have been heavily engaged with the public sector in areas such as
performance improvement, public-private partnerships, and helping with
better ways to provide services such as healthcare, so we are very involved
in helping governments adapt to the new realities.
KEIZER Companies and audit committees face a real challenge in balancing risk with being well positioned to emerge from the economic crisis. We are providing thought leadership through the KPMG Audit Committee Institute (ACI) on how to approach the alignment of risk and reward. Our professionals also are working with clients to make the audit process more efficient — to see where we can more fully leverage their internal audit capability, make greater use of technology, and offshore certain procedures where it makes sense. Our goal is to deliver the highest quality audit with the greatest possible efficiency.
What is the response to the changing regulatory environment?
BUCKLE In many cases,
it’s not the precise detail of regulation that has changed as much as the
attitude of senior executives and board members. There is a massive increase
in the level of awareness around compliance and the seriousness with which
these issues are taken.
We are in a time of great public scrutiny — from what you pay your people
to executive and director appointments. Governments not only have a point
of view, but increasingly are in a position to do something about it.
HICKEY Businesses
should not just accept regulations as the cost of doing business. They
need to understand the reason behind the regulation.
At the moment, tax authorities around the world are trying to promote a
collaborative approach and focusing more on regulating behaviors through
codes of conduct or relationship building, rather than fighting a losing
battle of trying to legislate rules for business models that keep changing.
This is a worthy approach and, if successful, it may provide a model for
other areas of business.
KEIZER I would encourage
those being regulated to start with trying to better understand the risk
that the regulator is concerned about. What is the reason for the regulation?
Absent the regulation, how would your company be dealing with that risk?
Then collaborate with regulators so they better understand how risks are
being managed — this can influence how regulation ultimately evolves.
BUCKLE Governments
also are realizing the limitations of national regulation. They have attempted
to regulate businesses that aren’t national. And there is risk of regulation
arbitrage, with companies choosing to do business where the regulations
are most favorable. Governments are talking about harmonizing regulation
globally, but this is an extraordinarily difficult thing to do.
HICKEY Regulation
on a national basis is fine only if compliance is a containable cost within
the country. But when multiple countries regulate around the same issue
in different ways, the cost of compliance multiplies for multinational
companies. Organizationally, we are encouraging tax authorities to agree
to a set of overarching principles so that with minimal localization, a
company can be in compliance with multiple countries’ regulations without
starting from scratch. If the focus is on meeting the principles, it is
likely that the company will meet the regulation.
KEIZER It pays to
work with regulators starting now, rather than waiting to respond in a
reactive manner. What might appear on the surface as incremental to the
regulator could be burdensome to the entities being regulated.
One of the key roles is working with clients to identify the impact regulation
can have on their business — plan for the implications and prepare to respond
in a thoughtful, comprehensive way.
HICKEY It's important to help clients balance two things — one is managing risk; the other is creating value. If clients can do that they can derive some benefit from the increased regulation. If benefits can be captured, it will encourage maintaining the processes that enable the value-capture. This incentive for sustainable processes should reassure regulators.
