When and what to expect?
It has been almost one year since the government published its whitepaper on corporate governance reform and the Financial Reporting Council (FRC) is still yet to respond.
However, it is expected that a response is imminent.
We do know that the result and subsequent regulatory changes will have a big impact on internal controls, with financial, regulatory and carbon reporting all increasing in significance. As such, there is an opportunity businesses can put themselves in a strong position by preparing as best they can for what’s to come.
Approaches from the market
When the workshop participants were asked “Where are you with controls right now?”, poll results indicated:
- 36 percent are waiting for the regulation have final sign-off
- 36 percent are making some changes in advance of the regulations
- 14 percent have a full implementation of a UK SOX style framework
- 14 percent fell into the ‘other’ category
This pattern differs slightly from what KPMG are seeing in their client base, with 10-20 percent being early adopters who have implemented full controls; 20 percent waiting for the regulations to be finalised; and 60-70 percent taking a more targeted approach by preparing for the long-awaited reforms to come into effect so that they can act quickly.
The pace of change in adopting new controls also varies across sectors – financial services and insurance have proven slower to move, with the banking sector now starting to gain momentum, while corporates are moving the fastest.
Culture change journey
There can be significant benefits to looking at internal control reforms under a boarder transformation journey. The people who manage controls are key to moving successfully at pace – it is important to take them on a culture change journey and get them on board with any reforms that are introduced.
In the workshop, participants heard an example from one organisation which ran a large branding campaign to make people aware of what UK SOX is, and what it means for them and their roles. If people are engaged, they will be more likely to take ownership and play an active role in driving the process forward.
Culture change was a popular topic of conversation in the workshop’s breakout groups, with many discussing how to best win hearts and minds – there was a strong belief that the time and effort put into this will be worthwhile. Some discussion centred around how to get transformation off the ground and make it stick.
The session also explored the role company boards can play as they tend to be closer to development in the regulatory landscape. A clearly emerging theme from the workshop is that culture and communication is fundamental in preparing for and adapting to corporate governance reforms.
Formalising plans amid competing priorities
Many companies are struggling with the formalisation of plans as it seems like such a huge task. However, workshop participants advised avoiding the term UK SOX in order to make it seem more manageable.
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With many competing regulatory requirements, it can be helpful to overlay them with one another and understand the gaps that you have between frameworks and the high-risk areas. Businesses are undoubtedly stretched currently due to talent shortages and the long-lasting effects of the pandemic but there is a need to plan for change. There is no one size fits all approach – sound advice is to focus on the likely scenarios, with businesses advised to prepare and take action now.
For more insights on UK SOX and Corporate Governance Reform from KPMG, visit their insights hub here.