Regulatory change: Strategic friend or compliance foe? KPMG rocks #findaba16

Political upheaval, King IV and ethical leadership were all on the agenda as some of KPMG’s leading minds applied themselves to the question of regulatory change and its impact on business at the Finance Indaba Africa at the Sandton Convention Centre in Johannesburg on 14 October in an entertaining session hosted by the multinational auditor.

The panel consisted of facilitator Tim Bashall (Partner, Leader, Regulatory Centre of Excellence), Lullu Krugel (Chief Economist), Dermot Gaffney (Associate Director of Tax), Nicky Kingwill (Head of Regulatory Centre of Excellence), Dr Schalk Engelbrecht (Associate Director and Head of Ethics Advisory) and Dr Kerry Jenkins (Director of Regulatory Compliance).

"Regulatory change has been identified as one of the top five strategic risks, no matter the industry. Financial managers tend to pick up flack for this and it usually gets handed to compliance officers, who work on the detail and in the trenches, and are not really suited to discussing it at a strategic level, where it needs to be," said Tim in his opening comments.

The panel agreed that regulation did not ward off investors, but in many cases, attracted them. "Investors may be attracted to regulation, depending on the way it is implemented and its quality. High-quality, consistent, transparent regulation can, in fact, boost the economy," explained Lullu.

Political change, however, did have an impact on businesses at a strategic level. Dermot said the world was becoming ever smaller and that legislation, especially relating to tax, could have far-reaching changes in seemingly unrelated territories. He cited Apple's troubles in Ireland, where the tech titan has been lumped with a 13 billion euro tax bill by the EU, despite the Irish government being willing to waive it. Nicky added that regulations didn't seem to operate in just one jurisdiction and the cost of compliance made it an unavoidably strategic issue.

Kerry drew attention to the sheer volume of laws that South African companies had to deal with - in some cases, well over 1 000 pieces of legislation. "It is a Herculean task having to understand your obligations from relevant laws and a overwhelming responsibility that is not just about fines and fairness to society, but also about reputation and clients. It is a big ask. Companies need to use technology to create a single, organic repository of information and ensure that the regulatory universe is understood."

Schalk considered trust to be the "most important operational resource" - one that could cement relationships and serve as a magnet for new ones, as well as make or break a business. "On a philosophical level, regulations create misconduct, not prevent it. When trust is lost, it is often the start of regulation in an attempt to regain it. If regulations help to create the right routines and the right processes in the right culture, this will be a strategic advantage - a friend, not a foe. If you look after culture, compliance will come." He added that regulations, however, did not serve as effective deterrent to misconduct, because of the pressure of meeting business targets and moral disengagement.

Kerry thought the forthcoming King IV codes of good governance were a good indication of the strength of the country's institutions. "Do the right things for the right reason and don't fall prey to short-termism and doing anything for a quick buck. King IV is focused on the morality of doing business. There are sections on ethical leadership, management and compliance. We can't leave morality to government or in the hands of one person and permeate organisations.