Is our Governance up to scratch or have we become complacent?

Bernie McKendrey, Deputy Chair, The Institute of Internal Auditors New Zealand

Bernie McKendrey
Deputy Chair
The Institute of Internal Auditors New Zealand

It’s time for us all to look in the mirror and ask ourselves some tough questions.

As a country we place a lot of trust and confidence in the governing bodies of our financial institutions and social service organisations. We want to trust that they ensure that everything runs as it should, customer and stakeholder needs are met, and our country prospers.

Maintaining our number #1 Corruption Perceptions Index ranking requires us to get the basics right. This ranking is not just about low levels of corruption in our public sector, but reflects our trustworthiness and integrity as a nation. It enables us to trade and compete in the worlds markets and attract capital. It underpins our economy and its growth and is intrinsic to our success, given our size and location.

However, we continue to be the victims of unethical and fraudulent behaviour due to poor governance and mismanagement. Have our integrity and values slipped below acceptable levels for us to see misconduct in our organisations year-on-year?

Whether it is South Canterbury Finance, Milford Asset Management, Ministry of Transport, the Waikato DHB or Commonwealth Bank of Australia, the themes behind these issues of misconduct are the same.

  • Were their Boards and Senior Executives guilty of complacency?
  • Were they too trusting or gullible?
  • Do they lack the necessary skills and capability to provide oversight and monitor, to challenge and question?
  • What role do the regulators, educators, professional bodies and professional advisers play?
  • Where are our assurance and risk management professionals and are they given the mandates to perform their roles?

We are all challenged to consider these questions for our organisations.

The findings in the aftermath of recent cases demonstrate that these questions are still a work in progress. The findings were:

  • Inadequate oversight and challenge by the Board of emerging non-financial risks
  • Unclear accountabilities, starting with a lack of ownership of key risks at the Board and Senior Executive level
  • Weaknesses in how issues, incidents and risks were identified and escalated and a lack of urgency in their subsequent management and resolution
  • A risk management framework that existed on paper but not in practice, and, immature and under-resourced assurance, risk and compliance functions
  • An overreliance on external audit and weak governance practices at the Senior Executive level.

The recommendations include:

  • A risk balanced strategy with equal focus on non-financial risk and outcomes for customers, the economy and New Zealand’s economic wellbeing
  • Cultural change, moving from reactive and complacent to empowered, challenging that builds ethics, integrity and good practice into the organisations DNA
  • More rigorous Board and Executive Committee level governance of non-financial risks
  • Exacting accountability standards reinforced with transparency and disclosure, and
  • A substantial upgrading of the authority and capability of assurance, risk and compliance functions, with the supporting mandate.

Self regulation involves effort

We do not want to be burdened with ever increasing regulation and the compliance cost it imposes. It is in the Kiwi DNA to be self-managing and self-regulating. But self-regulation and self-management are not a ‘given’ or a ‘right’. We must work for them and continually prove and justify why we should have them. We all play a role.

Regulators need to ensure that assurance, risk and compliance functions are mandated, and standards adhered to. There needs to be more disclosure and transparency on misconduct, instead of masking by the veil of confidentiality.

Educators need to provide the courses to grow and develop the skills that organisations require to develop capable and skilled, governance, executive, and risk management professionals.

Professional bodies need to monitor their members and provide ongoing development and training that is fit for purpose, not a one-size fits all. They need to be transparent on any disciplinary processes.

Professional advisers need to increase their assertiveness. They need to not only provide advice but work alongside their clients to promote good conduct and see that best practice is implemented.

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