governance-risk management-compliance

'
I expect a push towards a common platform and global standards'

  • Corporate governance becoming an important issue for India
  • A balanced approach needs to be adopted when investing in India
     

A common platform and global standards in Governance-Risk Management-Compliance (GRC) are strongly required as companies around the world compete for capital funds, so feels Mr. Gautam Banerjee, Executive Chairman of PricewaterhouseCoopers (PwC) Singapore. "I expect a push towards a common platform and global standards" in GRC. This is necessary because as companies around the world compete for capital funds, GRC becomes a pre-requisite for attracting investment", he says in an interview with Amitabha Sen adding that the corporate governance in India is becoming a very important issue with multinationals growing rapidly in the country and "more importantly", with Indian companies going global. So far as India's investment prospect is concerned, "Over the medium to long term, the fundamentals are good.  A balanced approach needs to be adopted when investing in India", observed Banerjee who is also the Chairman of the Asia 7 (A7) Leadership Team, the PwC Regional network of firms in Asia.


AS:  What are the fundamentals of governance-risk management-compliance (GRC) concept and the basic difference you find in this respect between a developed, industrialized country like the US and a developing one that is unfolding itself to a free market economy like India in terms of implementation? 

GB:  GRC is defined as "the organisation's practices and the various roles that the board and senior management, line management, and the rest of the organisation play in relation to oversight, strategy, risk management, and strategy execution regarding compliance with laws and regulations and internal policies and procedures".   

The fundamental elements to effective GRC are:

  • Corporate / organizational codes of conduct

  • Policies and procedures

  • Compliance and ethics training

  • Demonstrating expected behaviour

  • Ongoing process improvement

  • Real-time reporting

  • Monitoring / measuring GRC performance

  • Accurate, timely, complete and consistent information 

While more developed markets should be further up the curve in terms of implementing GRC, I expect a push towards a common platform and global standards. This is necessary because as companies around the world compete for capital funds, GRC becomes a pre-requisite for attracting investment.   

In terms of implementation, societies that are highly stratified will find it harder to develop effective GRC. An important element of GRC is the ability of subordinates to challenge their superiors and raise the right questions. An egalitarian system will therefore be conducive to the development of GRC. In Asia, the dominance of large family owned or controlled corporates, makes it a particularly challenging environment for ensuring good GRC. 

For India, corporate governance is becoming a very important issue as multinationals grow rapidly and more importantly as Indian companies go global.  International norms of corporate governance are being introduced in India with clear requirement for various committees of the Board of Directors and independent directors. In this context, the introduction of the modified clause 49 of the Listing Regulations (proposed for 2006) will be an important milestone.

AS:  How would you like to interpret corporate governance and state governance where the nature and liberty of risk taking may not be similar? 

GB:  Corporate governance is about management accountability to stakeholders. The state has a wider mandate and is responsible to all its people.   

The underlying principles driving both should be the same. It should be firmly grounded in ethics and the objective should be to foster a culture of openness and transparency. Another challenge that states face is that they have a limited time to achieve their objectives. An elected government has 3-5 years to achieve its manifesto while their projects may be infrastructure related and longer tailed.   

AS: How would you like to see the role of e-governance that is getting top priority in many of the developing nations and to what extent it can influence the risk management and compliance aspects of an ideal GRC model ? Can e-governance ensure better risk management and can compliance ensure better product quality? 

GB:  By e-governance, I am assuming that you are referring to the application of technology to GRC and management processes. Automation greatly enhances efficiency in all aspects of a business and GRC is no exception. Manual processes are complex and prone to error but technology simplifies processes, making them more consistent and reliable. Risks are better managed if the information available to managers is of a better quality.   

AS:  In a situation where a country like India is being transformed fundamentally from the concept of  mixed economy where the state units had played vital role in the national economy to a free market economy, how an ideal  GRC process could be embedded in the emerging regime?  

GB:  The basis for corporate governance is transparency and discipline. Any company that wants to operate in capital markets and attract investors must demonstrate that they are serious about corporate governance. The transition from state owned to free market must take this into account. Moving from a system where there is state oversight to one where a company applies self regulation means more dissemination of autonomy and all employees are required to take responsibility for compliance with laws and regulation. The foundation of good GRC is adoption of a mindset that embraces openness and transparency. The implementation of people, processes and systems to support this is the necessary next step. 

AS: In one of your speeches you observed that it was the euphoria of growth, deal-making and soaring stock prices that mesmerized the corporate world during the bull run of 1990s when vital issues of governance were neglected. Do you find indications of a similar scenario today in India where the growth euphoria, the M&A deals and the soaring bourses are clouding the Indian corporate world? Would you like to put a note of caution for those high dreamers or find them on the right track? 

GB: Some attribute the out-performance of the Indian stock market to increasing share ownership and market liberalization but there is also an element of speculative trading that investors have to be wary of. The market is also buoyed by large foreign institutional investors who are attracted by prospects of earning higher returns. These companies have a short term outlook and will pull out of India if there are other higher growth investment prospects available.  Over the medium to long term, the fundamentals are good. A balanced approach needs to be adopted when investing in India. 

------------------------------------------------------------------------------------------------------------------

Gautam Banerjee is the Executive Chairman of PricewaterhouseCoopers (PwC) Singapore. He is also the Chairman of the Asia 7 (A7) Leadership Team, the PwC Regional network of firms in Asia which includes China/Hong Kong, IndoChina, Malaysia, Taiwan, Thailand, the Philippines and Singapore. Prior to this, he was a member of the firmís executive committee since January 1996 and had experience leading various business units in the firm, including most recently, the firmís largest business unit, the Assurance practice.

During his 23 years with the firm, Gautam has been responsible for some of the firmís largest clients. He has also contributed significantly to the development of PwC Singapore from a predominantly audit and tax practice to a multi-disciplinary professional services firm with capabilities in Risk Management, Corporate Finance and other business advisory services in Banking and Capital Markets, Telecommunications and Technology.

Gautam is a member of the Institute of Chartered Accountants in England and Wales and the Institute of Certified Public Accountants in Singapore. He graduated with Bachelor of Science (Honours) in Accounting and Financial Analysis from the University of Warwick in the United Kingdom.

Gautamís activities outside the firm include being a member of the Ministry of Financeís Cut Waste Panel, a member of the Appeals Committee, Publications, Ministry of Information and the Arts and a member of the National Heritage Board.
 

Uploaded on November  7, 2005