Manuel del Río, an independent director of the Graña y Montero Group has recently participated in the forum: “A NEW BOARD: A NEW AGENDA”, organized by Semana Económica, KPMG and the PAD of the University of Piura.
In that panel Manuel shared with Carmen Graham, director of several companies, Renzo Ricci, general manager of PRIMA AFP, and Oscar Caipo, senior partner of KPMG, his vision on how to face the challenges of independence, transparency, and compliance. Nowadays, companies must face these challenges in order to comply with the best standards, which ultimately result in good reputation and good corporate governance.
Following is an interview and an article summarizing his participation.
By Manuel Del Río
The Boards are certainly changing worldwide. The market demands better directors, who are more committed and active. Thus, they must be renewed and become more professional, they must dedicate more to their roles, be more inquisitive and concerned for the persons and the management, and ultimately, they must be more aware of the risks their companies are exposed to.
Directors must reinvent themselves constantly, and to achieve this, training is a must. Society at large and its different stakeholders have high expectations of directors, and the latter are required to have multiple reference frameworks: legal, occupational, financial, and those related to risk, compliance, information, technology, behavior, due diligence (with partners, clients, suppliers, and so on.), gender, among others.
The “rubber stamp” or “applause” type of director, who has little or no participation and zero added value is a dying species. The market is highly competitive, and currently, directors are facing a series of challenges, such as: Compliance, transparency and independence.
What are the compliance issues that must be included in a Board’s agenda?
The answer to this question is the well-known “tone at the top”. The board and the senior management must set the “tone” of their actions. They decide how to enforce “compliance” of regulations and standards, and must be consistent and coherent, so that this moral force permeates in all the organization.
Not every issue can be discussed in the Board’s agenda, but instead they must be prioritized. The number one priority will be the “tone at the top”, and the second priority will be to analyze where the greater risks are in case of breach.
Thus, analyzing the possibility of risk and its level of impact should constitute a basic activity to establish a risk map, where those having a higher impact will be the ones kept in the agenda.
Number one priority of the board will the “tone at the top”, and the second one will be to analyze where the greater risks are in case of breach.
On the other hand, having a specific risks committee is a basic aspect that every organization should take into account. Otherwise, it is important to have a management structure that actively works in the measuring, analysis and occupational risk prevention.
However, neither cutting-edge technology, nor the best system for identifying and preventing occupational risks, nor the most intelligent, or the best trained or best certified director will work properly if the board he/ she belongs is not coherent with their actions.
Some definitions approaching this idea are the English phrases “walk the talk” (consistence – I practice what I preach) and “tone at the top”, both concepts are not just in vogue, but instead a faithful reflection of what the boards must have as a goal.
At present time, there is a need to communicate with transparency, internally and externally. This need is, at times, a regulated obligation, something mandatory. For example, companies listed in the stock market, or those companies using the stock market have certain obligations to communicate; obligations that other companies do not have. However, whether this is a regulated obligation or not, it is mandatory to communicate with transparency to each one of the stakeholders.
Clearly, a Company has different stakeholders, shareholders, personnel, clients, suppliers, banks, regulators, the community, etc.
Each one of them must be informed, by emphasizing in the subjects of their main interest.
However, when we deal with the subject of reputation, external communication becomes much more important, since reputation is intangible and its loss or destruction can be immediate.
Actually, we do not “communicate” reputation, but instead we build reputation, and to do this we need to build our organization, our relationship with our clients, the quality of our services or products, etc. By communicating about them, we are helping to profile our reputation.
The difficult time takes place when something that has taken us years to build falls apart due to a reputation problem. What is to be done in this case? Certainly, we must reinforce our good practices, but if we have done wrong, we must ADMIT IT, CHANGE IT and inform it. In sum, it is basic and important to communicate the elements upon which our reputation lies, with honesty and transparency.
Nowadays companies must communicate with transparency, internally and externally.