If you were in the regulators’ shoes, how would you create enforcement initiatives that are not too invasive without adding costs to corporate bottom lines?
PWC’s Center for Board Governance this week released the final installment of its Annual Corporate Directors Survey, ‘Strategy, risk management and regulatory and governance environment’, and many in the governance community may be interested in its findings.
According to the PwC study, ‘nearly two thirds of directors (64 percent) believe the evolving regulatory and enforcement initiatives have not increased investor protections, and 77 percent don’t believe they have increased public trust in the corporate sector. Many (three fourths) feel increased regulation and enforcement initiatives have added costs to the company that exceed benefits, and 56 percent believe they have put excessive burdens on directors.
These statistics are troubling to say the least, and suggest that many of those who took the PwC survey are frustrated with regulators and probably regard much of what they have proposed as a waste of time and money. While it is easy to beat up on the regulators for not getting everything right when it comes to anti-corruption measures, it’s worth considering the following.
Whenever you are fighting a problem that involves changing human behavior, much of the time whatever you do will appear to be having no measurable effect. But that doesn’t mean it isn’t working. If 64 percent of directors are discussing regulators’ enforcement efforts, at least the regulators have succeeded in making enforcement a subject of discussion in the boardroom. The message: come up with your own enforcement measures that eliminate corruption problems within your internal environment and you’ll have fewer dealings with the regulators’ enforcement measures.
If 77 percent of directors believe enforcement initiatives have not helped increase public trust in the corporate sector, perhaps that’s because whenever regulators get involved, it is when they are investigating a company – or someone at a corporation – that is suspected of not being trustworthy. The more instances of executives and employees engaging in wrongdoing that are exposed, the less confidence the public will have in the corporate sector. What better way to stop regulators from investigating wrongdoing than to have the executives and employees at each company not engage in any wrongdoing? Of course, that’s easier said than done. But ultimately the responsibility for increasing public trust in the corporate sector lies with the corporations themselves.
The public demands that someone do something about the rash of unethical business practices and fraud we’ve seen in recent years, and regulators are always put on the spot to provide solutions. After the 2008 crisis, critics charged that ‘regulators were asleep at the switch’. Now, in order to make sure that doesn’t happen again, the regulators have put more rules in place and are pulling the trigger on investigations more often than corporate directors might like.
This is the environment circumstances have created, so now directors and governance professionals must deal with it. Perhaps we can start with convincing CEOs, top-level executives and company employees to refrain from committing fraud and other unethical and corrupt actions that cost shareholders money. But how in the world do we do that?
Corporate Secretary would like to hear your thoughts on this because it truly does require changing people’s behavior. If you were in the regulators’ shoes, how would you create enforcement initiatives that are not too invasive without adding costs to corporate bottom lines? We’d like to know…Click here to tell us.
