Everybody’s talking about it
The business headlines have been dominated for months by the news of one corporate failure after another. In periods of recession, this is not unusual. The allegation is that this time it is different. Put simply, the suggestion is that the current system of corporate regulation is broke.
There is strong evidence to support this. With apologies to Oscar Wilde, to allow one serious fraud of the level of Enron to develop may be regarded as a misfortune; to allow more looks like carelessness.
The problem is that changes in regulations are often simply superficial or ill-considered responses to political arguments that ‘something must be done’. Moreover, they allow the fraudulent, incompetent, unlucky and just plain greedy who have caused corporate failure to shift the responsibility for assessing their actions away from themselves to the regulators.
The real response has to come from within corporations. Treasurers and finance directors have to be open about the risks that their companies face, and the ways in which they are managing those risks. Companies also have to decide how they reward staff who have the responsibility for managing these risks. Stock incentive schemes aimed at maximising share value in the shorter term, regardless of the longer term damage, are not the best way to motivate such staff.
The development of new regulation will take some time. Companies, even those unscarred by recent events, cannot afford to wait until any new regulations are in place before they start to reflect on how they are going to regain investor trust and respect.
The Northern Hemisphere summer is usually a time when the pressure is off. This year finance directors and treasurers need to think carefully about the way they present themselves to investors.