Compliance

No business without COMPLIANCE and RISK OFFICERS

There cannot be any doubt that the coronavirus disease of 2019 (Covid –19) has redefined the world in general and the work environment in particular. In the work environment, the Compliance and Risk Officers probably have the most complex tasks of ensuring that businesses stay afloat.

by Advocate Modidima Mannya, IRMSA Risk Chat Contributor

While the Finance Officers battle to manage budgets and make do with limited and constrained financial resources, the Human Resources Officers battle with the implications of having to retrench, the Strategy and Marketing Officers battle with business repositioning and more importantly; the Compliance and Risk Officers ought to be battling with the complex compliance and risk environment, which has since developed during this pandemic.

Compliance and risk management is not necessarily taken seriously in many organisations. Most Compliance and Risk Officers are misunderstood, avoided and or even disliked.This is mainly because at the end of the day, they tend to ask pertinent questions and raise issues which determine the life and future of an organisation and its staffissues that management don’t necessarily want to deal with, or merely just not ready to deal with.

The changes brought about by Covid–19 complicates an already complex operating environment for Compliance and Risk Officers. The compliance requirements of Covid–19 has added to the pressures experienced by the Compliance and Risk Officers.

Business continuity and operational survival of any organisation is now entirely dependent on the risk management’s capacity to effectively manage compliance and risks.

The new normal has heightened the risk profile of every organisation and redefined company’s strategic risks. This means that the Compliance and Risk Officers must now adjust to discharging their responsibilities in a high-pressure environment.It is in moments like these when matters detrimental to the organisation, like corruption, mismanagement and various other acts can expose an organisation to serious high operational risks.

Many organisations faced a sudden shutdown where even existing business continuity plans could not be implemented. Those who could have staff work from home were suddenly faced the additional cost of providing staff with work-from-home resources. In many instances, emergency procurement became the buzzword. Labour intensive and small businesses were forced into immediate and unplanned retrenchments. This is all evidence that risk management was not taken seriously, or has not worked as it should have.Compliance and Risk Officers have to work through these various controversies and complexities to define and ensure good governance in an abnormal situation.

The first immediate challenge is whether leaders of organisations appreciate that every single decision must now be compliance and risk informed. Equally, Compliance and Risk Officers face the critical challenge of appreciating that they now work in wholly undefined environment which requires thinking on one’s feet.

As government eases lockdown and businesses re-open and more social and economic activities take place, Compliance and Risk Officers need to be able to critically analyse the implications of any activity associated with their organisations for effective inputs. The normal approach to compliance and risk management is mitigation. In the current environment, risk prevention and immediate elimination is the new normal.

As an example, infection control and prevention measures determine the future of any organisation. Compliance and Risk Officers are now required to do advisory and implementation work, as well as monitor the work (and processes) being carried out by the organisation.It is no longer enough to have a compliance and risk plan and expect the risk owners to implement. Compliance and Risk Officers are now part owners of compliance and risk issues.

This is also partly because policies remain unchanged, and in many instances, they are no longer applicable. Furthermore, it is vital that decision making must be rapid and decisive, if a catastrophe is to be avoided. Malfeasance is generally an opportunity issue. Those entrusted with managing resources often take advantage of situations such as this. Heads of organisations are unlikely to cope unless they have a dedicated compliance and risk capability which enters the arena when necessary.

As every decision depends on compliance and risk, decision making must incorporate the advice of Compliance and Risk Officers. The current situation is new to many if not all organisations and may not have precedent. That is however not a defence available to a Compliance and Risk Officer.

Compliance and Risk Officers have always worked outside a defined framework. Whatever the policies, rules and plans, Compliance Officers and Risk Officers rely more on critical analysis skills than defined industry frameworks and practices.In the context of the current situation, it is Compliance and Risk Officers who can advise better how people can relate to each other in the workplace, who must be there and what must be in place. It is the Compliance and Risk Officer who can tell better, who must be allowed to drive the truck or make tea.

It is the Compliance and Risk Officer who can tell better which door of the building to use and how staff must behave whilst at home. It is the Compliance and Risk Officer who can tell whether the right quality of sanitisers should be procured. It is these basic things which determine whether an organisation can open its doors and remain operational.

It is the Risk and Compliance Officers who can tell better whether it is worth retaining staff or spending money an organisation does not have.

Therefore, Compliance and Risk Officers should assess whether: 1. They are in a position to lead the organisation, especially in compliance, business continuity and risk management matters amid Covid–19; 2. They are in a position to seamlessly integrate the compliance, business continuity and risk management into organisational processes for effective organisational operations; 3. They are in a position to influence business in such a way that the organisation is rescued from a catastrophic scenario, and 4. They are also ready to hold difficult conversations with stakeholders.

Right-sizing:

the ‘GOLDILOCKS DILEMMA’ for business under Covid-19 pressure

Down-sizing may present a short-term solution to survival for businesses under the pressures of the coronavirus pandemic, but right-sizing – checking the relevance of value propositions, repurposing resources and filling gaps in customer needs – should not be overlooked as a route to longer-term sustainability.

“W e all know the fairytale where Goldilocks is faced with three steaming bowls of porridge – they all looked appetising but on closer inspection, one proved to be too hot, one too cold and only one was just right.’

“For business, these challenging times call for creative solutions to cost and relationship management that are neither too hot or hastily imposed, nor too cool and distanced from the customer, but just the right size,” says University of Stellenbosch Business School (USB) managerial accounting senior lecturer Sonja Cilliers said.

There cannot be a blanket assumption that business will return to normal post-coronavirus, and without strategic thinking and planning, “a real danger exists that short-term solutions to alleviate the pressure cooker of the present may negatively impact medium- to long-range decision making,” she warned.

Business survival is top of mind worldwide, with daily announcements of leading companies in trouble – multi-national corporations such as car rental giant Hertz, $18-billion in debt, and retail chain JCPenney ($4.2-billion debt) filing for Chapter 11 bankruptcy protection in the USA in May alone.Locally Edcon filed for business rescue in April, with revenue losses of R2-billion, Comair followed in May (R3.4-billion in debt), and Massmart announced that up to 1 800 employees in its Game stores could be retrenched.

The challenges are clear in the second Stats SA survey of the impact of Covid-19 on business, published in mid-May, indicating that 9% of the 2 182 businesses surveyed across various sectors had already closed down permanently by 30 April, almost half had ‘paused trading’ in under Level 5 lockdown in April and 30% said they would not survive a month without any turnover.

Although the follow-up survey published at the end of June showed that pressure had eased slightly under lockdown level 4, mounting cash flow problems still appeared to threaten survival, with only a third of businesses confident that they had the financial resources to continue operating through the pandemic, said Cilliers.

“If the issues faced are of temporary nature and the company finds itself in a position in which it cannot meet its financial obligations, then a process such as business rescue may be a viable option.

“For those companies that have some leeway in terms of cash management and therefore the luxury of time to plan, it would be sensible to consider two aspects: First, to deal with the immediate threat to continued operations and, second, critical analysis of the sustainability of the business model and the continued relevance of the value proposition to the customer.”

While an application for business rescue or bankruptcy protection doesn’t mean a company will necessarily be liquidated, and corporations such as General Motors and Delta Airlines have regained profitability after bankruptcy reorganisations, she said “the challenge in the wake of the Covid-19 pandemic is to determine whether the business model followed by a company is still valid”.

She said cost-cutting measures to deal with immediate cash flow problems should be done with a clear view to the direction in which the company is headed, and “where possible, organisations should aim towards a right-sizing rather than a down-sizing orientation”.

“Right-sizing requires that resources be repurposed to where the needs gap is manifesting currently. It may very well be that right-sizing the organisation may lead to increased activity in certain aspects of the business, for example products that fulfill basic needs of customers may see an increase in demand in these times. The challenge then becomes how to repurpose resources, which may range from redeployment of the workforce to the reorganisation of a production plant,” Cilliers said.

She pointed to the example of US supermarket group Whole Foods which has turned some of its physical store locations into ‘dark stores’, repurposing them into semi-warehouses for online order fulfilment to meet a massive increase in demand for grocery deliveries and curbside collections as customers seek physical distancing.

“The customer needs gap is filled while also providing the store with a greater margin of control over the current bottlenecks and delays suffered by delivery services,” Cilliers said.

She added that relationship management throughout the value chain will be a critical success factor to ensure the survival not only of the company, but the entire value proposition to the end user. The loss of key supply partners “may prove to be as catastrophic to the business as is the loss of customers”, she said, pointing to the Stats SA survey which indicated that 53% of businesses had been unable to obtain the materials and supplies required to continue operations.

The pandemic environment means companies will have to revise forecasts and adjust budgets on a rolling basis, even though assumptions about future revenue that underlie budgeting are particularly challenging with customer spending patterns impacted by decreased income, changing needs and physical impediments to purchasing.

“Revenue assumptions drive production or service costs and in many cases, these costs are fixed over the short term. Even where costs are seemingly locked in, managers will have to think about renegotiating terms, repurposing and rescaling activities. If businesses can access their relationship capital without resorting to a formalised business rescue exercise, they may be able to garner a larger amount of control and flexibility as to the way forward,” Cilliers concluded.