Governance - can be good for business!!
The recently released 2015 Strategic Risk Outlook from the Financial Markets Authority makes interesting, if not rather worrying, reading. Interesting because of references to the widening horizon of the regulator's focus on issues such as transferring or replacement of financial products, and worrying because of the emphasis on governance of corporate entities and the responsibilities of directors of financial services distributors who operate as corporate entities.
Many financial advisers in the NZ market operate within a company structure, and the FMA has declared that it expects appropriate standards of governance to be displayed by company directors, as the following quote from the report testifies.
"Significant risks may arise where boards fail to lead from the top, or where they simply apply a ‘set-and-forget’ approach. Instead, boards have a responsibility to continuously assess culture and conduct against both organisation and customer outcomes."
It is clear therefore that every limited liability company operating within the remit area of the FMA will need to review their corporate governance practices, policies, and procedures very carefully in order to meet the regulator's expectations.
For many, this will be achievable with little, if any, changes.
However, some commercial entities which may have been shy of getting too involved in the governance area in the past, now need to take stock of the standards of conduct referred to in the FMA's document and which will be given more extensive coverage in a document due to be updated - "Corporate Governance in New Zealand, Principles and Guidelines". Directors of these organisations need to review how they set the 'tone-at-the-top' and how they monitor the culture and conduct of the company.
Being a director of a limited liability company carries legal responsibilities which can no longer be dismissed, ignored, or regarded as "not applicable to me".
Those days of cruising along relying on lawyers and/or accountants to take care of such legal, compliance, and regulatory matters are long gone - directors now have to be aware of the implications of their status and take active steps to ensure that they are not exposed to action being taken against them by regulators, clients, or other stakeholders.
But this doesn't have to be bad news - it is possible to design a governance strategy which is constructive, positive, and helps the business to develop.
Many financial advisers have evolved from good salespeople into business owners and managers, and have developed skill sets to run their companies effectively and successfully. But governance requires an altogether different set of competencies, and seeking qualified and experienced input is a prudent and sensible course of action.
In this context, no two companies are the same and there just isn't a uniform strategy which suits every company's circumstances - which is why external support is recommended.
Having served on boards in Australia and New Zealand - in both the private and the public sector, I have a fair idea of the FMA's requirements.
Click here to check if this track record appeals and if I can be of any assistance, please get in touch.