TURNING REGULATION INTO PROFIT To the Editor

  • Date:01 Aug 2005
  • Type:CompanyDirectorMagazine
If your article "Is corporate regulation killing the company" (Company Director, June) encapsulates many of the views held by Australian directors, then directors need to re-examine the way in which regulation can be turned into profit or conversely how to produce the evidence that the regulations are unnecessary, or unfair and why change is essential to regulations.

TURNING REGULATION

INTO PROFIT

If your article "Is corporate regulation killing the company" (Company Director, June) encapsulates many of the views held by Australian directors, then directors need to re-examine the way in which regulation can be turned into profit or conversely how to produce the evidence that the regulations are unnecessary, or unfair and why change is essential to regulations.

We operate in a globally competitive market place and, with share ownership now a mainstream matter, regulators are moving to protect the public and the public purse.

Legislation will always be reactive; in response to some "disaster" anywhere in Australia or the rest of the world, thus Australian directors are no longer insulated by distance. The reactive response by directors that legislators and regulators face a challenge in better understand how the corporate world works is an expectation that is not going to happen unless there is corporate leadership to make it happen. However the non-standard approach by Australian governments in implementing regulations is reason enough for the chairman/board to be proactive in preventing "disasters" through risk management techniques that are sensitive to people in and outside the corporation and the political/social, environmental, physical and legal consequences of "failures".

It is disappointing to note barriers in acceptance of responsibilities between the chairman, board and executive management. It is even more disappointing that no mention is made by the board/executive management of sharing in the responsibilities on the operations level that in case of a failure will filter up to the board.

In Europe regulators are moving responsibilities further down in the organisation, especially with respect to software safety - so there is a need to rethink sharing of responsibilities. It is now well accepted that 70 percent of corporate knowledge value is on the operations level and tapping this resource is the key to change in meeting the challenges of this unregulated market economy.

Fear is what keeps directors awake in not knowing everything that goes on in the company. Fear is a good motivator to implement designed internal transparency so that directors can delegate risks to be managed within the company and also inform themselves of what is going on in the company. A means of making knowledge about risks flow within the organisation as well as a means of making knowledge flow across the nation so

that legislators "do understand".

Linking transparency to the 70 percent of knowledge value on the shop floor and removing knowledge barriers to merging the remaining 30 percent held by management will lead to corporate reporting that is the envy of the competition and an unfair competitive advantage.

However directors require control over the regulations they will get in the future and that requires a new system of measurement able to make intangibles tangible.

We get the regulations we deserve unless we learn to turn regulations into assets and use independent audit regulations for financial, environmental and software safety as a means of continuous improvement in risks to be managed and meeting customer expectation on demand.

Change the existing legislation/regulations; these are firmly in place and the effort to change them will be exorbitant, the challenge for directors is to forestall the law of unintended consequences that result in unwanted/unfair legislation/regulation.

Kurt Rieger

Managing director

ATP Management Design

START BUILDING TRUST IN YOUR ORGANISATION

I read your cover story 'Irrational Exuberance and Corporate Regulation' of your June issue with interest.

Having a background of 14 years in compliance and risk management roles, I have much experience in helping organisations understand and deal with legislation and make the necessary changes in their ongoing compliance.

Although the news of legislation increasing at ridiculous rates would have some compliance experts rubbing their hands together with glee, I can't help but ask - where is it all coming from and who is it really for?

Having always been a principles-based consultant, raising awareness of the intent of the legislation with organisations I have worked with, even the intent seems to be blurry now.

Here's the thing - most people do not like being told what to do. However, when they understand that by doing it there is some real benefit either to themselves or someone that matters to them, they usually let their guard down and will do what is necessary to follow the rules. If there is no clear benefit to following the rule, then all I can say is "Good Luck!".

Now, if much legislation is designed to protect the consumer and/or the shareholder, and in many cases the employee, are these the people really asking for rules to protect them? If it is them, why are they asking for such strict rules to apply, and why aren't they asking the organisations themselves for some answers? Why is it that the legislature is responding?

It is a matter of trust. Consumers have stopped trusting many of the organisations that provide their products and services. Shareholders are distrusting the organisations they have their money invested in, and employees have long stopped trusting their employers. Not in all cases for sure, but in too many for my liking.

Add to that a bunch of regulators that no longer trust the boards and the individual directors sitting in the driver's seat of these organisations and you

have got a recipe for disaster.

So how do we fix it? We desperately need to gain trust back in corporate Australia. Too many organisations espouse "trust" in their corporate literature, but how many of them really know what it means and treat it with the respect it deserves?

So, how do we restore it? Understand that trust is about simple things like keeping promises made, implicitly and explicitly, managing expectations that others have of you, and gaining credibility and integrity in all you do and say. Look at why your regulators may have stopped trusting the business community. Find out if and why all your stakeholders stopped trusting you as a director, a board, and as an organisation.

There is a choice, and not necessarily a pleasant one.

You can have an organisation that continues to look for loopholes, reasons why it shouldn't follow the rules, treating each new piece of legislation as yet another waste of money and resources, and continually breaking the promises you make to your staff, your customers and your shareholders, or you can start building trust in your organisationand have your stakeholders trust you again.

Vanessa Hall

Founding director of Entente, a consulting company with a focus on helping build and keep trust

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