Who manages risks, controls and compliance in governance?

Thursday, 19 February 2015 00:00 - - {{hitsCtrl.values.hits}}

Governance, risk and compliance Governance, Risk and Compliance (GRC) function is a key focus of the board, CEO and the top team of any global multinational operation. “The business environment over the past few years has experienced an unprecedented series of issues, surprises, and negative events that have increased the focus on the adequacy of organisations’ governance, risk, and control activities. To address strategic issues, some organisations have developed initiatives referred to as GRC, which look across their risk and control functions holistically and seek to enhance their efficiency and effectiveness.” [1] A Strategic Framework for Governance, Risk, and Compliance by Mark L. Frigo and Richard J. Anderson The governance framework post 9 January? With the big change in the governance commitments post 9 January, especially during the 100-day program and in the years follow, if the change momentum is to take effective root and grow in to a strong tree, a benchmark governance culture must be fostered supported by all critical stakeholders engaged in change management and in embedding such a culture. Who leads GRC in the Sirisena administration? Is there anyone, a few persons or a group, whether formally appointed or even informally assigned, taking accountability to alert and guide the new administration, in regard to governance, risk, controls and compliance issues, that emerge, or are likely to crystallise in the future? Have the President, the Prime Minister, former President Kumaratunga, the National Executive Committee, advisors of the President/PM, key ministry secretaries, been assigned this task?; or has anyone voluntarily undertaken this critical responsibility?; or could it be that in the celebratory mood, raised egos and the corruptive power of new found power, the need for such an activated function has not even been considered essential? “What lies behind you and what lies in front of you, pales in comparison to what lies inside of you” – Ralph Waldo Emerson Some governance, risk and compliance issues since 9 January If the leaders of the new Government were conscious and alert, surely they would have identified many critical issues of governance, risk and compliance, that should have been proactively and effectively managed with steps taken to avoid them negatively impacting on the new Government! In order that the attention of the new leadership is drawn to the critical need for such an effective framework, to identify, assess, minimise and manage governance, risk and compliance issues, 15 such issues are highlighted below: Financial risks During the Vote of Account presentation, the Minister of Finance irresponsibly described the state of the economy the new Government had inherited as akin to a grenade with the safety pin removed, which he said could explode under different natural, deliberate or accidental situations. Here the Minister appears to have not assessed the risks of such a statement being flashed in the financial media as a headline, in a key financial market like New York. The possible consequences of such negative reporting on the sovereign credit rating and the level of short term foreign fund investments in Government securities, resulting in a unplanned drawdown and possible aftermath of a balance of payments crisis, should have received the attention of a GRC team and been mitigated. The Minister should have been alerted of the consequences of a statement in Parliament many years ago by Finance Minister Wijetunge, under the President Premadasa regime, with regard to People’s Bank being unable to pay its debt obligations. The unprecedented and immediate strategic corrective actions of then Secretary Finance Paskeralingam resulted in saving the State banks from a collapse by their inability to establish letters of credit for critical imports. If the Minister was alert and keen to update his Cabinet and advisors of the real state of the economy, he should have in confidence arranged a compilation of the fiscal gap (the difference between the present value of all of Government’s projected financial obligations, including future expenditures, including servicing outstanding official Government debt, and the present value of all projected future tax and other receipts, including income accruing from the Government’s current ownership of financial assets) for tabling in Cabinet as a part of the 100-day program, setting out the strategic action to reverse, over an agreed period, any challenging issues (e.g. indicating the percentage of necessary tax increases or spending reductions to close the fiscal gap in the long-run). The Minister of Finance should play in the Cabinet/Parliament a Sinhalese translation of the presentation by Congressman McClintock on 3 February tabling the Default Prevention Act in the US House of Representative. http://mcclintock.house.gov/2015/02/default-prevention-act-hr692.shtml Management risks Good management principles advocated by the new regime require transparency, effective communications, statutory compliance, adherence to due process and effective public consultation. It appears that as far as key pieces of legislation planned over the 100-day program, including; 1. Right to Information Law 2. National Drug Policy 3. Code of Ethics and Conduct of Elected Representatives of the People 4. The structure, objectives, terms of reference, scope of accountability and Powers and the constitution and qualifications of key members of the Parliamentary Oversight Committees, Constitutional Council, National Advisory Council and Independent Commissions 5. National Audit Bill 6. Electoral Reforms 7 19th Amendment and other Constitutional amendments These standards of good governance are not being complied with. It is possible that the present Prime Minister, who when in power during the period 2002-2004 period, articulated that effective communications were not the way forward strategy in advancing change management and peace, a fait accompli situation being the preferred option. He may still be firmly rooted in the former culture. In addition the top team must be seen to “sing from the same hymn sheet”. If this is not consistently adhered to in governance, reputation risks will arise. The conflicting ministerial announcements on the Port City Project confirm that this risk has crystallised. Organisational, procedural and structural risks The organisation, systems, procedures and the structures in operation over the previous regime, especially during the post war period, being rejected by the people and being unacceptable in good governance, it is essential that these be reorganised and restructured as a measure of priority. Can the new team, many of them are backed by experiences which are over 20 years old and having been out of office for 10 years and supported by the same administrative/executive mechanisms of the prior regime, deliver on a timely basis the efficiencies, effectiveness and economies required in the current environment? Foreign policy and other international risks Sri Lanka is facing a priority threshold challenge in re-establishing a non-aligned foreign policy, where international relations reach out on a friendly basis to all countries, whilst re-establishing firm relations with the Western Nations (including main trading partners in USA and EU), India, Japan, ASEAN, Middle East, UN and multilateral agencies, International lending agencies, without damaging the supportive relations built with China and Russia, the closest allies of the previous regime. These new relations must bring about a change that supports the sovereignty and territorial integrity of Sri Lanka being respected and given an opportunity to resolve internal conflicts and reconciliation, and establishment of peace harmony with accountability, through internal mechanisms, supported where required by technical assistance. There must a singular new priority initiative deploying economic diplomacy strategies, in promoting Sri Lanka as a preferred destination for trade, services, investment, technology transfer and travel. This is a priority risk that requires close attention by those best qualified to support such an initiative. Similarly, managing the risks and compliances potentially arising from the UNHRC process now in progress must be handled with care as a priority using best international relations strategies available. Risks of high post appointments It is essential that there be a preliminary mechanism vetting and validating the risks of nominees for high posts (i.e. before appointment by the Constitutional Council, the President, Cabinet). Their suitability, integrity, independence, professional capability and leadership qualities must be assessed along with their past track record, ‘fit and proper’ profile, and any negatives on account nepotism/old school tie, etc. The necessarily to fill such post must also be assessed As there have been several questions raised with regard to recent appointments to the Cabinet, as secretaries, chairpersons and directors, the National Executive Council could act as the body that review appointments and the associated risks. Statutory non-compliance risks The risks of any Governmental actions in violation, manipulation, short circuiting or bending of the constitutional/statutory or regulatory provisions, good governance standards, rule of law and just and equitable criteria, administrative/financial regulations can crystallise reputation risks and illegality of governance. By effective risk management this risk must be mitigated. The procedure followed in the removal, re-appointment and new appointment of the Chief Justice is one such act criticised in the recent period.

Governance risks By the very nature of the adopted core value of the new Government, already endorsed by the people at the last election, there is an expectation that rule of law, societal norms and expectations, accepted codes of ethics and conduct in public life, good governance standards, upholding moral standards, just and equitable criteria, administrative/financial regulations, and meritocracy will be sine-qua-non in governance practiced by the new regime. The same expectation holds the new leadership accountable to exercise internal party disciplinary measures where there are break downs or violations of the bench mark standards. The party disciplinary procedures were not proactively exercised against a Member of Parliament and ministers, purportedly responsible for:

making an Opposition supporter kneel and be subject to physical violence;
allowing supporters to attack a presiding chairman of a Pradeshiya Sabha controlled by a coalition partner;
and tacitly supporting the attack on a State property, where party henchmen have an interests in acquiring for personal gain.

This has led the public to question the good governance practiced by the regime. This risk needs to be effectively managed.

Decision paranoia and implementation risks It is natural to expect in a newly-established coalition of political forces with diverse ideologies committed to solutions that are at variant with the other, for members with little experience in team work, effective leadership, conflict management and building bridges/networks and alliances (especially coming together from a stand point of finding fault with policies, actions, decisions and decision making processes of the previous regime) to be engulfed by decision paranoia. They can be frustrated by the inability to manage such issues pulling them apart from effective decision making within acceptable risk boundaries. This weakness could extend to:

inability to develop out of the box solutions/be strategic and see woods from the trees
the prioritisation of resource allocations;
project selections, appraisal, and approval, award of tenders, follow up, project management and even in to post audit and learning of lessons.

The effective management of this risk will be a critical responsibility of the new leadership, their advisors, key secretaries and the top executive team. This weakness was seen recently in regard to the re-assessment of the Port City and Uma Oya projects. Control risks Effective internal control mechanisms, checks and balances, independent regulatory supervision structures, audits, consultative committee reviews and post audits are essential in managing the risks of good governance assurance. Key management information, fiscal, monetary and census data and other macro benchmarks must bear professional acceptance devoid of risks seen in the last regime. Cost of controls must never exceed the expected benefits. Human resources and succession risks Governance, risks and compliances are mainly driven by human resources assisted by ITC, modelling, scenario/contingency planning, risk mapping, trend projections and budgetary controls and project management tools. Hence, having the best team in place to manage these tasks and manage associated risks is a priority along with succession planning and contingency teams for deployment in the future. The risk of not having a second tier of leaders for succession and being in readiness to contest future elections should be a high priority of the leaders. Environmental risks Environmental and ecological risks must be managed by scientifically-based professional decision making, validated by an effective cost benefit analysis compiled recognising sustainability principles. These challenges must not paralysed by the process of effective decision making. Extremism risks The extremists waving flags of communalism, ethnic superiority, majority, religious extremism, promoting heritage and nationalism and spewing hate speech and inciting violence and suppression of minorities and disadvantaged segments will emerge in all parts of the island. These forces are likely to be supported by the diaspora, international extremists and even by displaced local political forces and business persons with private interests. This risk must be watched and managed effectively on a timely basis. Euphoria bubble risks The people have begun to relax, feel safe, take pride and be joyous of the change, enjoy the goodies and handouts, cost of living reductions, income enhancements. This euphoria bubble is short-lived and unless sustainable change is experienced, whereby poverty alleviation measures marginalised segments up lifted and basic needs of food, shelter, water, sanitation, education and health are delivered, along with sustainable household incomes, new job opportunities, infrastructure support where it is most priority and economic growth that filters down, the euphoria bubble will burst in the medium term and this risk must be identified, tracked and effectively managed. Reputation risks The good governance commitments made, promising fair and firm dealing within the law, those who have pilfered, mismanaged and appropriated as personal benefits national resources, engaged in waste, corruption and acts damaging the lives and livelihoods of citizens and promoted fraud deceit, violence and promoted narcotics, dangerous drugs and sold harmful items, are not effectively implemented, the consequential reputational risks will have devastating effects on those in leadership. Continuity risk The politically more astute persons with a network of support at all levels, including those with power and resources, though now defeated, may leverage their popularity, image, squandered assets, and supporter bases sooner than later, to make another bid to capture power at a future election or through other devious and undemocratic means. This risk needs to be watchfully assessed on a regular basis and mitigation action taken.

If the gains from the change are to take root to add value in the longer term on a sustainable basis, for benefit of the majority of citizens, the continuity of the present type of coalition regime will be essential. The continuity will hinge on
Sustained good relations, understanding, acceptable give and take between the President, the Prime Minister and coalition party leaders
An acceptable leader taking charge of conflict management, mediation
An independent team taking responsibility for governance risk and compliance function and
Civil society leaders being the whistle blowers
The continuing support of the JVP, TNA, Muslim community and JHU

A continuing political alliance coalition agreement valid for at least 10 years being inked with commitment by the UNP and the SLFP, underwritten by the current leadership team and no significant dissent developing between the two largest political parties in the interim The best supporting option 19th Amendment and electoral reforms being enacted before dissolution Conclusions It is hoped that the new regime will take these critical views in the right spirit, recognising the potential downfall, if appropriate leadership actions are not taken immediately to establish at the very highest echelons of the Government a team to ensure governance, risks and compliances are effectively managed and continuity assured. “Nearly all men can stand adversity, but if you want to test a man’s character, give him power” – Abraham Lincoln.

Who manages risks, controls and compliance in governance?

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