All corporations should be concerned with conduct risk in 2017. The threat of loss, both financial and reputational, due to the actions of one, or many, managers or employees is greater than it has ever been.
Every business today is faced with heightened media scrutiny and public expectations. In a world of instantaneous and unrestricted communications, the ability of individual customers, users, observers or even competitors, to spread information about grievances (real or imagined) and to seek action, is unparalleled in business history.
We see conduct risk as an increasing threat in 2017, as a number of factors converge:
- The pressure to meet high performance targets in a low-growth world is likely to lead to more frequent incidences of unethical or illegal conduct.
- The increasing regulatory burden in many industries is putting an added strain on already constrained corporate resources, both in operational and compliance functions.
- Social media is amplifying public scrutiny and expectations regarding corporate behaviour are changing accordingly.
- The public's level of trust in business people and tolerance for their missteps is quite low.
All of this is likely to translate into a greater focus on business conduct, corporate culture and ethics.
On the regulatory side, we can expect continued debate and discussion regarding the adequacy of disclosure requirements. Corporate social responsibility and compensation disclosure are already on the agendas of market participants and governance observers. Reputational risk disclosure will be added to that mix.
On the business side, expect additional pressure on senior management to review the effectiveness of corporate policies, adopt robust alternative reporting structures for whistleblowers, shore up employee education programs, increase the accountability of executives, establish a suitable ethical tone-at-the-top, and align financial incentives with longer-term and strategic objectives.
Boards of directors are increasingly being held accountable for the reputational and financial damage caused by conduct risk. They will demand action from management and it behooves directors and executives alike to take steps to proactively address conduct risk across the enterprise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
