United States: The Compliance Challenge: Managing Legal & Regulatory Risk (Video)

Last Updated: October 18 2017
Article by Ryan Rohlfsen

Ryan Rohlfsen, a Ropes & Gray government enforcement partner, highlights findings from a new report on legal and regulatory risk management, based on a global survey of 300 in-house professionals.


Well, good afternoon everyone. I'm very pleased to present a highlight of the reports you all have on your chairs. Later this afternoon, if you have time, grab some coffee, take a look at the report – there's a lot of really interesting stuff in there. And so I'm just going to touch on a few things that really jumped out to us, that we thought you would find interesting as risk managers in your organization.

Basically, we looked at three areas for the key survey results. One, areas of concern – so what is causing companies heartache in terms of substantive areas, be it cybersecurity, be it anti-corruption, be it regulatory risk. And also, how are you looking at managing risk on a global scale? What geographies are causing you a lot of concern? We're also going to talk about how companies viewed collaborating across the enterprise in order to mitigate risk. And finally, I want to talk a little bit about what companies are thinking about going forward with the future of risk management.

This was a global survey. The FT surveyed almost 300 people across organizations, so this wasn't limited by industry or geography – really, it was across the board as you see there. And the folks we spoke to were senior in-house legal, chief executive officers, chief financial officers, CCOs and others that really had a deep understanding of their concerns, and also, the risk mitigation processes. And, as noted, we really kind of drilled down with all of these folks on several particular areas – wanting to know are there things that really keep you up at night? Are there particular countries that are very concerning to you? Are there different industries, if you have a multiple-industry portfolio of businesses, that you view as more concerning than others? How are you coordinating risk across the organization? And how is it changing in your organization over time?

I think at the bottom level, what our results found was that the vast majority of folks who responded felt that businesses had never been under more pressure than they are now from regulators and that's whether it's at a local level, or regional level, or even international regulators. And part of the reason is because the stakes have gone up so much. We see a lot of press about massive fines that are being levied on companies. And also, in connection with that, we see greater and greater levels of information sharing by the regulators. You know, 10, 15 years ago, the Justice Department might share bank records or a few other simple pieces of information with other colleagues around the world, other enforcement agencies – and vice versa, they would receive limited bits. Now it's pretty commonplace to see fairly massive, not only information sharing, but also coordination among regulatory agencies, and this is causing a lot of, or have caused a lot of, our respondents to indicate that they're very concerned about these risks.

[Referencing presentation] With the top line being regulation and compliance – now that's a fairly broad category. But, in fact, across all industries that we surveyed, they felt that regulation and compliance was the greatest single risk to their organization. That was true with banking. That was true with technology. It was also true with pharmaceuticals and life sciences and others. In fact, we surveyed 12 different areas and there actually isn't a huge spread between the highest and the lowest – 8.7 was the highest and the lowest was 7.7. So still at 7.7, you're seeing a fairly high level of risk and everything in between.

In terms of thinking about countries and geographies that are causing companies anxiety, probably unsurprisingly, developing markets were considered the most risky. By far and away across all survey respondents, China emerged as the market that everyone viewed as their riskiest, and that was without regard to industry, or type of business, or level of business being involved. Somewhat surprisingly, in terms of developed markets, the United States and the United Kingdom were viewed as the riskiest markets to do business in. We have a panel coming up in a few minutes – it's going to talk in detail about the challenges of Brexit. My partner, Ruchit Patel, from the UK – from London, is going to talk about that. But you can see how Brexit has introduced economic and political risks that translate into business risks. From the U.S. side, obviously we have some stuff going on in Washington you've probably seen every now and then. And then, on top of that, of course, everyone knows my old office and Marc's old office, and others', the Justice Department, the SEC, the other regulators, are very professional and they're very aggressive and this presents real risk if you have a geographic footprint in the United States.

When we think about how different industries approach risk management, we actually saw a fairly common response. Pretty much everyone said one of the first things that's very important to them is making sure they have a strong tone at the top. I think that can sound a little cliché, but I think a lot of people believe it and mean it. And what you're talking about there is tone from the CEO, from the chairmen, and those at that level who are really giving not only a voice to risk officers and compliance officers, but also funding and giving economic support as well. That said, is those who are identified as a chief risk officer, in whatever position he or she holds, is the person who is ultimately looked to, and the buck is going to stop with them for day-to-day management of these responsibilities.

When we think about how companies are conducting across risk management across a global enterprise, we kind of saw it break into two separate groups. About half said they really look at enterprise-based risk analysis from a centralized approach. In other words, they want risk management to be driven from global headquarters. And about the other half said, no, no, we want to actually take it out into the individual business unit or individual geography. And there's obviously a lot of really good reasons why that, one approach or the other, may make sense for your business and your industry. That said, almost 90% said that they really believe that greater collaboration could and should be occurring between the various silos in the organizations to try to drive more value and greater collaboration in mitigating risk.

Some of the practical things we heard about and how they're trying to drive collaboration. We heard about companies forming global risk committees where they would actually take an enterprise look amongst experts to see what's working and what's not. Making sure they had good compliance programs. Having game plans in place, like we heard about with Robby, having those incident response plans ready to go if that can and does happen. Holding town hall meetings, not only at the C-suite level and the legal suite, but also actually getting down into the individual markets and the local business units to hear from folks no the ground what's really concerning them. And then, obviously, surveying the enterprise on an annual basis across a number of different areas.

One other thing that came out of this survey quite clearly was a lot of people talked about the need to work with peers. So if you're a CCO, maybe it's talking with other CCOs at peer organizations to see if you're hearing about similar risk and similar challenges and how you're addressing them, and maybe, you know, hear about new best practices. Also, a lot of people talked about dealing with investors and obviously, there's a fine line here. In the U.S., if you disclose too much or you perhaps say that your risk management program is so good and then something bad happens, that may open you up to a shareholder lawsuit. So kind of balancing those competing interests was found to be quite important. About two-thirds said that their investors were somewhat happy with their level of disclosure. They felt they were happy with the disclosure they were getting on risk management policies. About one-third said that their investors were not satisfied.

So looking forward to the future, in short, 43%, so less than half of the folks surveyed, thought their current policies and procedures for risk management were sufficient for their current needs. And only two-thirds, 69%, said that they were really concerned about their future, that their current policies meet their future needs. That said, we saw 82% really thought that their organizations were going to give credence and give support to innovative technologies, innovative approaches to approach risk management going forward. So kind of with that, I think we're going to a short networking break now and we've really designed the rest of the afternoon to kind of lead on this – to talk about some practical steps that people at other organizations are doing in order to mitigate risk and to think about how to mitigate risk and stay ahead of the curve going forward. Thanks a lot and enjoy the break.

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