The role of business systems in achieving good corporate governance (page 1 of 2)

A vital component of any move towards better governance is an integrated IT infrastructure that supports an organization's internal requirements for greater transparency and control, as well as compliance with market and industry regulations, explains Ayman Abouseif, Senior Director - Marketing, Middle East, Africa, Eastern, Central Europe, Oracle Corporation.

Following last year's slew of high-profile accounting scandals, corporate governance has become a topic of intense public interest, and rightly so. Almost half of all senior executives now designate corporate governance among their top three business priorities, according to the Economist Intelligence Unit.

Many commentators accurately identified honest and timely financial disclosure as part of achieving good corporate governance, but in fact this is just the tip of the iceberg. Good governance is not simply a matter of complying with industry regulations and financial reporting frameworks. It has just as much to do with what happens from day to day inside the company. The principles of good governance dictate that a company must be fair, honest and open with all of its stakeholders, and that includes employees as well as external parties.

In other words, a company's internal business objectives need to be compatible with the demands of the external regulatory environment. The primary goal of today's senior executives, therefore, should be to create an organisation that is transparent and compliant both inside and out. Furthermore, everyone in the organisation needs to be aware of both sets of requirements, and management needs to keep a very close track of how the company is performing against each one, so that no unwanted "surprises" occur. These considerations are pervasive across the organization, affecting the supply side, the internal financial and administrative functions, and the customer facing side of the business As the backbone of modern business, IT systems have an extremely important role to play in the creation and maintenance of the well-governed company.

Companies using multiple operating currencies and with offices, divisions or subsidiaries abroad are well aware of the pressures associated with trying to comply with multiple regulatory bodies, each with different requirements. Even with the introduction of the International Accounting Standard (IAS), the first single framework for financial reporting across the European Union, companies listed on both sides of the Atlantic will still have to report in IAS and U.S. GAAP, and in many cases one or more national GAAPs as well.

Furthermore, many companies are regulated by industry bodies , each with its own rules and regulations. As a result, certain industries are at higher risk of committing damaging compliance breaches, particularly in highly regulated sectors like financial services and pharmaceuticals. The recent Basel II Accord, for example, requires a massive effort on the part of European financial institutions to comply with its new requirements for risk management, while the recent "N2" regulations require all UK financial advisers to adhere to a strict new code of conduct or face possible legal proceedings. With so many regulators demanding compliance, providing a full and accurate report to each one can be very time-consuming and difficult.

IT systems can aid the quest for accurate and trouble-free compliance in two important ways. They can help companies disclose information quicker and minimise the potential for reporting errors, thus reducing the potential for nasty surprises at reporting time.