From Crisis oriented Light Touch Controls to Right Touch Governance
Deregulation and market-based guidance followed by the credit and economic crisis has changed the political order of the day for the board of directors. As companies fight for global recognition the main focus is to have the right Governance, risk management and compliance (GRC) structures in place to identify the next potential systemic effect of a future crisis. In other words, the rewards for investing in effective governance are crucial
There is a growing consensus that the board of directors relied too heavily on self-governance and weak corporate governance and risk management frame work contributed to the continuance of the 2008 meltdown. The boards of directors failed to grasp the risks their institutions had taken on. They did not know their vulnerability to severe shocks, or they failed to act with appropriate prudence.
Management, whose decisions and actions influence the company's risk level, clearly failed to understand and manage risks. In many cases, stimulate on by stakeholder greed both management and the board focused on performance damaging management wisdom.
Effective GRC processes are needed to complete the rules-based regulation that the oversight authorities discharge on the management. Prudent managers need carefully crafted rules-based regulations concerning capital, liquidity, permitted business activities, to safeguard the economic structure of the company. Effective GRC activities can be shaped, monitored, and controlled if the Audit Committee is aware what actually happens in the company's engine room.
Once the AC knows what's going on in the engine room the right GRC structures can be developed, early warnings scenarios that avoid a massive macro economic vulnerability can be created. Effective governance then makes a significant positive difference by helping to prevent future crises or by mitigating their negative GRC impact in the engine room.
There is a need to reassess the company's GRC approach and take meaningful steps that provide a comprehensive set of concrete insights and recommendations to fulfill the responsibilities and make GRC function more effective.
Some of the concrete insights and recommendations to find out what is really going on in the engine room are:
- Give effective GRC activities one of their highest priorities.
- Create better methods (workshops, surveys, training) of assessing GRC by cultivating behaviors and approaches that make governance systems work well.
- Board self-evaluation, especially when facilitated or led by an outside expert (call us)
- Understand GRC effectiveness and vulnerabilities, and acknowledge that there is much to learn.
- Use only those GRC experts that integrate the processes and give thought to how to measure or obtain high-performance GRC results.
Matrix and measurements can only be achieved if there is sufficient focuses on specific rules, structures, and processes-best practices-that are indicative of GRC best practice guidelines for the board of directors to oversee, monitorand encouraging ethical governance.
Source: Harvard Business Review
