Strengthen Your Core: Are You Getting the Most from Your Compliance, Operations, Risk, and Enterprise Support Functions?

By Bierstaker, James; Marshall, Kenneth K. et al. | Strategic Finance, December 2010 | Go to article overview

Strengthen Your Core: Are You Getting the Most from Your Compliance, Operations, Risk, and Enterprise Support Functions?


Bierstaker, James, Marshall, Kenneth K., Greenwald, Jonathan, Strategic Finance


In setting objectives for or evaluating the performance of CEOs, most often the measures are about strategic direction, market share, revenues, profit margins, assets, new products, and similar growth indicators. Rarely would you see the question, "How do you know you are getting the most from the company's investment in its Compliance, Operations, Risk, and Enterprise (CORE) support functions?"

If you really believe the adage "You get what you measure" (regardless of whether the measure is qualitative or quantitative), how can boards of directors justify not considering CORE support functions when determining how to compensate CEOs and other business unit executives? Stated simply, the behaviors of CEOs and other senior business executives will depend on the measures applied in setting their compensation and evaluating their performance.

The costs of not having a robust risk management and compliance system can be high. Take, for example, the case of the one trader at French bank Societe Generale who made unauthorized trades that resulted in a $7.2 billion loss, despite a compliance system that was supposed to prevent this. Moreover, a lack of risk management procedures at financial institutions may have been at the root of the current economic crisis. This means that regulators will now be focused on CORE controls at financial institutions.

Legislation and Regulation: The CEO's Responsibility

In the aftermath of Enron and WorldCom, as well as industry-wide investigations of mutual funds, investment banking, investment research, and insurance, the financial services industry has had to cope with an unprecedented level of legislation and regulation. The intent is to correct corporate misconduct and force accountability higher up in the organization. Such legislation and regulations include the Sarbanes-Oxley Act of 2002 (SOX); Securities & Exchange Commission (SEC) Rules 38a-1 and 206(4)-7 of the Investment Company and Investment Advisers Acts of 1940, respectively; National Association of Securities Dealers (NASD) Rule No. 3013; and the Dodd-Frank Wall Street Reform and Consumer Protection Act. No matter the legislation and regulation, chief executive officers and chief compliance officers (CCOs) are expected to:

* Create policies, procedures, and processes to ensure that employees operate within all legal and regulatory boundaries;

* Ensure that the company communicates--and applicable employees understand--the policies and procedures that set forth the corporate principles of behavior;

* Design and operate a risk management and compliance program that accomplishes the stated compliance objectives;

* Monitor that the company follows policies and procedures; and

* Exercise oversight and testing of compliance programs to certify that the program is working effectively.

In addition, the Basel II accord (and now Basel III) and the Markets in Financial Instruments Directive (MiFID) are examples of regulatory drivers of a similar nature that affect non-U.S. companies and U.S. companies with international operations. Adding to the international breadth of recent regulations, companies in many countries are adopting rules similar to SOX. In the March 12, 2007, issue of U.S. News & World Report, for example, Ethiopis Tafara, director of the SEC's office of international affairs, explained that SOX-type reforms had been undertaken in all major international capital markets, which is one reason for their maturation.

Moreover, during the recent near meltdown of the financial markets, we witnessed:

* The disappearance of such prominent firms as Bear Stearns and Lehman Brothers;

* Government rescues of and/or assistance to American International Group (AIG), Citigroup, Bank of America Merrill Lynch, and General Electric, as well as two major automobile manufacturing companies (General Motors and Chrysler); and,

* The discovery of major Ponzi schemes at wellknown hedge funds. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Strengthen Your Core: Are You Getting the Most from Your Compliance, Operations, Risk, and Enterprise Support Functions?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.