Financial metrics are not the only indicator of success in today's markets, and rightly so.
Organisations are facing increased scrutiny from stakeholders and requirements such as gender pay gap reporting and whistleblowing, both of which have been the subject of extensive media attention in recent months and these are just two examples of how non-financial matters are hitting the headlines. As a result, the level of exposure and transparency expected of organisations is higher than it has ever been and good business ethics and accountability are finally becoming king – or at least increasingly important.
However, expectation goes further than just telling people what you are doing. There has been a raft of changes to non-financial reporting requirements that mean organisations have to officially respond across a number of operational areas. Gender pay and whistleblowing have already been mentioned, but additionally, data protection (GDPR), modern slavery, payment practices, equality and diversity, tax evasion, bribery and money laundering also bring with them various reporting and disclosure requirement – and there are many more.
Designed to stamp out fraudulent and/or prejudicial practices and improve business integrity, these requirements allow, for probably the first time, the public, the media and employees to have an insight into the inner workings of organisations.
The level and breadth of compliance however seems to be causing confusion – verging on angst – in some organisations as to where they should focus their efforts. Do they meet the minimum requirements? Are they doing enough to satisfy stakeholder concern? Do they stand out from competitors as doing too little?
In our most recent research into the topic with YouGov, it was found that nearly 60 per cent of those questioned felt that non-financial reporting, the mechanism through which risk is minimised, is excessive or demanding diverting major resources and hindering company operations. So what does this mean for organisations and should it be cause for concern going forward? If organisations feel that these obligations are hindering company operations, are they at risk of not ensuring that it is happening properly? Our research suggests a worrying cake and eat it’ mind-set within middle market business. On the one hand businesses recognise the major risks they face, yet on the other hand remain reluctant to fully engage in a process that minimises the risk and the associated liabilities. If done well, it can engender stakeholder confidence and business value. And of course, in doing this businesses can also often gain a much broader competitive advantage.
This is most evident when looking at just two of these core issues anti-money laundering and bribery. 81 per cent of middle market firms consider themselves at risk of falling foul of anti-money laundering and anti-bribery legislation according to our joint research with YouGov. The question needs to be asked here – is this so high because organisations cannot devote the level of resource needed to ensure compliance?
So what is the answer?
In short, there isn’t just one answer, but there are certainly best practice behaviours that can dramatically reduce risk across an organisation and make these types of obligations less onerous. In brief:
Education
It is a logical conclusion to make that an organisation’s workforce needs to act as a first line of defence. This applies right across the board, from the processing of customer data correctly under the new GDPR requirements, recognising and reporting unethical or illegal behaviours, through to recognising evidence of modern slavery.
It is critical to recognise that the pressures of compliance do not sit solely with senior management and it is important therefore to empower staff with the knowledge and know-how to recognise potential non-compliance.
Policies and procedures
Organisations need to take these requirements seriously and, without implementing policies and procedures for each one and making sure that their staff have read and understood these policies, they won’t be doing that.
Supplier relationships
You can help to eliminate risk from your supply chain by reviewing contracts, carrying out supplier audits and having independent reviews. In many cases today, if your suppliers are non-compliant this will have major ramifications (including fines and potential jail time) for your own business and its reputation.
What do you do now? In our publication, Beyond the Balance Sheet, we have set out some of the key areas organisations need to be thinking about. This is in no way an exhaustive list, but it will begin to ensure that governance is on the board agenda.
Visit www.rsmuk.com to download the guide and start challenging your assumptions about how to approach governance across your organisation, and consider the best practice we outline for each core area.
For more information on any of the topics covered, please contact Philip Church on 0191 255 7000 or email philip.church@rsmuk.com or your usual RSM contact.
