Get EWRM right and compliance is a given

- Herman Schoeman, MD of Guardrisk

In an ideal world Enterprise Wide Risk Management (EWRM) would drive compliance, however, often (especially in South Africa?s current compliance environment) it is compliance that is driving EWRM. The danger of focusing on compliance as opposed to EWRM is that inherently the focus of compliance is inward and, while looking inward, management can take its eye off the external ball, missing both threats and opportunities. However, compliance automatically follows when the EWRM focus is simply on doing what's right for the business; and it is in the benefit of doing things right the first time, every time, that the true value of EWRM lies. Businesses don't often calculate the actual cost of "mistakes" but, if they did, they would realize that while there may be an additional cost to doing things right, the long-term benefit is of far greater value to the business than the immediate cost.

A competent EWRM framework inevitably incorporates compliance deliverables, but not necessarily the other way around. For instance the US's Sarabanes Oxley Act instituted on the heels of a plethora of corporate fraud and corruption cases deals with compliance and assigns personal liability to the chief executive and financial director when they sign off the financial statements - the blame can no longer be placed on the auditors, and the excuse "we didn't know" just doesn't wash anymore.

Within an EWRM framework the directors automatically take more responsibility for the outcome of the business as opposed to transferring that risk to the auditors, insurers or other outside parties. There are no surprises and this means dealing not only with pertinent issues (like compliance) today, but looking at the business landscape in the future; anticipating issues that could affect the business in the medium- and long-term and taking timely and appropriate counteraction. For example, proactive involvement in industry forums today could help to shape legislation and mitigate the impact that such legislation could have on the company's business model in the long run. While EWRM is often associated with onerous compliance and regulation it is important to acknowledge that it also has an opportunistic side.

In today's global village windows of opportunity are becoming increasingly small, and the advantage of having a good EWRM system in place is that the business is able to make quick, educated decisions; evaluate its appetite for risk and tackle risks in a controlled fashion. Some may say that EWRM belongs more in an established first world economy than in a developing economy like South Africa's. But, when properly applied, EWRM does not promote bureaucracy and red tape; essentially it deals more with quality than quantity.

While South Africa's legal framework, including corporate compliance, is world-class; the downfall comes - as it does with the enforcement of general legislation - in the lack of enforcement capacity. This means that there are still some companies in the local market - though admittedly they are in the minority - taking the chance of non-compliance in the short-term. Unfortunately, the government inevitably responds to non-compliance by making more rules and laws.

In promoting a self regulating environment the government actually burdens companies trying to do the right thing with more reports and paperwork. Undoubtedly lack of enforcement capacity is a transformation issue and capacity will come in time; and those companies that have become compliant - ideally through the application of sound EWRM principles ? will find themselves well placed and with a very real competitive advantage in hand.


For further information contact:
Herman Schoeman, MD, Guardrisk:
(011) 669-1000 / 082 376 3821

Prepared by: Melanie Davis,
PR@Work CC
Tel: 011 615-3309 or 083 225 7450