With 2011 commencing on the hope that global economy will recover and the misfortunes of the last decade are now in the past, the question on everyone’s lips is what does the future hold. If we had a crystal ball to predict the business scenario, risk management would be a simple exercise. Unfortunately, the future is not ours to see and we can only prepare for the contingencies to the best of our abilities. Uncertainties are called uncertainties because they are predictably unpredictable. However, we can’t just sit and do nothing hoping that by some quirk of fate no disaster will strike us. Risk management enables us to come out from under the cloud of unknowing and make reasonable preparation by implementing risk mitigation plans.
I found the posts below to provide my readers information on the yearly trends and a way forward for 2011. The first post is from The Institute of Internal Auditors blog titled “Looking Ahead to 2011: What Does It Hold for Internal Auditing”. Richard Chambers estimates that internal audit budgets will increase; there will be higher focus on operational risks and effectiveness of risk management.
In the second post, I have attempted to determine what the key concern areas for business ethics are. The article on Business Ethics blog “The Ethics of Social Media – Part I” discusses the need for organizations to develop a social media policy. Social media policies and management are critical as it can cause extensive reputation damage in a short timeframe. Read both the parts of the post to understand the issues.
The last post is an extract of the keynote speech delivered by Paul Armstrong, at the recently held Best Governed Companies award function organized by The Institute of Company Secretaries of India. The “2010 National Award for Excellence in Corporate Governance” was presented to Dr. Reddy’s Laboratories Ltd. and Larsen & Toubro Ltd. The full speech is available in a PDF document and is worth a read. It discusses various challenges India is facing in corporate governance and describes a way forward.
Click on the headings below to read the full posts.
As far as internal audit resources go, I believe the year ahead will show continued progress. Without a doubt, 2008 and 2009 saw overall reductions in internal audit budgets and staffing worldwide. A recent IIA Audit Executive Center survey indicated that since 2007, more than 32 percent of internal audit functions worldwide have seen their budgets reduced. 2010 appears to have seen internal audit resources stabilize. When asked about the outlook for 2011, only 15 percent of respondents predicted further budget reductions while more than 38 percent predicted an increase in their internal audit budgets in the year ahead. The degree of optimism for 2011 tended to mirror the economic outlook by global regions; however, in virtually every region, anticipate that 2011 will be better on the resource front than 2010.
Internal auditing’s focus is also likely to continue evolving during 2011. As I’ve noted before, one of the most dramatic stories unfolding around internal auditing over the past two years has been a rapid reorientation of coverage. While much of the past decade was spent “banging away” on auditing financial controls, 2009 and 2010 have seen a resurgence of internal audit coverage in areas of such critical risks as operational, compliance, and fraud. The Center’s survey results project the trend is likely to continue in 2011. When asked which areas internal auditors plan to increase coverage over further in 2011, the following areas were noted most often:
- Operational risks – 51 percent.
- Effectiveness of risk management – 48 percent.
- Compliance risks – 45 percent.
- Fraud risks – 44 percent.
- Cost reduction or containment – 35 percent.
So your company hasn’t had an OMG moment over Facebook ethics?
As they say, Good Luck With That.
It has been almost a decade since Congress passed the Sarbanes-Oxley Act in the wake of the Enron, Tyco and WorldCom scandals, seeking to put in place a variety of measures to protect investors and address standards of behavior. Over the years, once-controversial practices about disclosure and ethics have become generally accepted standards.
But the social media explosion – from email and Facebook to blogs and Twitter – is making a hash of once-resolved issues and creating all kinds of new dilemmas.
–Businesses have less and less control over how they communicate with the public, while 24-7 bloggers feel free to snipe away.
–Job seekers find their private lives may no longer be private and employees worry that the boss is electronically looking over their shoulders.
–Consumers can’t be sure their account information remains safe and have no way to tell whether favorable on-line comments about products and businesses are legitimate.
–Professionals of all sorts — psychiatrists, attorneys, school teachers, reporters, and even NFL players – are learning to live with new, often controversial, social media rules. A customer’s irate blog can undo months and years of corporate image work. A careless email can sabotage delicate contract talks or M&A negotiations. Failure to protect customer information can result in years of costly litigation. An old party-hearty photo may block a chance at a new job. Hitting “send” without thinking can torpedo an executive’s career.
A recent front cover of the Economist—titled “How India’s Growth will Outpace China’s”—featured a blurred photo of a tiger running, seemingly dead-set on a target. No doubt, India’s potential for long-term economic success. And, discussions this week with China’s Premier and his delegation surely underscore this point.
It reinforces the image of India’s prowess: an agile, focused, and strong economy racing at top speed. To maintain such momentum and live up to its forecast, India has a chance to establish a strong foundation of corporate governance in how its companies are run with stakeholders’ best interests in mind. Points that were reportedly underscored yesterday by India’s Prime Minister at the SCOPE Awards!
Crises such as Satyam compromise India’s promising and enduring economic outlook. Because it exposes fundamental areas of concern that are important to foreign investors and capital markets. Issues such as:
- the relationship between controlling and minority shareholders particularly in family owned or controlled companies
- related party transactions and its proper regulation
- quality of financial disclosure
- the role of promoters
- independent oversight of the Indian accounting profession
- limited activism of domestic institutional investors, and
- issues of director independence and board effectiveness.
Observers of India’s corporate governance acknowledge that reforms are taking place around these issues, but also lament the pace and commitment to change. Therefore, in the aftermath of the Satyam scandal it might be instructive to explore what the situation looks like two years later.
The overall message is that though business scene would show some improvement, there is a lot to be done to make it secure. Risk managers work is cut out for them and they have to lead organizations by developing and implementing proper risk management strategies. Wishing you all lots of good luck to walk this difficult path with ease and confidence. Let us all hope for the best and do our best.