We live in an age where the rate of technological advancement means that a commercial idea can blossom and grow into a multibillion-dollar enterprise very quickly without being regulated.
Developing a new business model and novel way of generating revenue is obviously an important part of capitalism and something we should all applaud and promote. The absence of regulation is a consequence of a particular model, or business, not having existed previously. It must, of course, adhere to the usual imperatives around established risks such as financial crime, competition, sanctions, fraud etc. However, because of its newness, it’s main cash generator may escape regulation, at least to start with…..
Inevitably, as a new sector grows around this emergent business model, consumers and regulators take notice and as time has shown, someone in the new sector then invariably commits an indiscretion which enrages its stakeholders. When this happens, it is near certain that regulatory change is coming.
When stakeholders are seriously disaffected you can sense the regulators gathering and scrutinizing the business to understand how it works and how it should be regulated. That scrutiny now occurs in a joined-up way for global businesses as regulators often tell us. However, this new business model often cannot be regulated using the current rule book. This is perhaps the most challenging moment for a new business model because when regulators run out of effective regulations, they turn to the legislators to make new regulations. At this point, the original intent of the regulation can be deflected by political necessity and lobbying. So, a bill can be diverted or amended from its original intent because of interested parties lobbying the right people. There are always many more interested parties than we – or the regulators and legislators – appreciate.
At this stage companies usually take a belt and braces approach. On the one hand stepping in to lobby the legislators and regulators to ensure that the new regulation is at least proportionate and, on the other hand, planning and looking forward. They will assess what their risk profile will be after any new regulation has impacted them and build change into the way they manage that risk/compliance. This is a good approach and a time honoured one. It is also a difficult one to manage whilst at the same time staying abreast of the rapidity of change in the business especially where it is aiming at an IPO.
Recently, however, with the increasing speed to maturity for start-ups and technology companies, there may be a third, additional, option open to these companies. This is the option to directly employ people at the centre of this change dynamic who have suffered a near death experience in a large company and can help quickly guide issues if/when they turn tricky.
Sometimes there is a reluctance in rapidly growing companies to seek out the grey hairs and battle scars of people who have been through the regulatory wringer and lived to tell the tale. Often, these people are seen as not fitting the culture of a rapidly growing sector/company. While this may be the case such a view overlooks the value of this experience. The battle-hardened expert has:
- Looked an angry regulator in the eye and realized that no matter how good their risk and compliance programme is, the regulator will publicly find something wrong with it.
- Had to respond, balancing the need, on the one hand, of not deflecting the business from its prime purpose whilst, on the other, keeping the regulators and the news agencies from doing irreparable harm to the business.
- Managed the appointment of a monitor, introducing that monitor to the business and managed day to day how a monitor views and reports on the business.
- Managed a risk and compliance programme emerging from a regulatory fine or monitorship.
- And has emerged from this maelstrom intact.
Far from being yesterday’s executive, this regulatory savvy executive can be of real value to the organisation and will offer considerable value in the eyes of principal stakeholders. Now, when cognitive and experiential diversity is really critical to a business, there may be an often overlooked element in the form of those with deep battle scars from previous experiences, who do not have a lifetime of experience of the sector, but have real value to impart to embattled organisations.
Look for battle scars and if you have them in your business, keep them close.
Tim Langton is a respected risk, ethics and compliance professional with long experience of building, running and leading these functions – and complex change programmes – in major global businesses including Reuters, BOC, BP and most recently at Centrica plc. Tim has managed disclosures and notifications to numerous global regulators and has on-boarded and facilitated the work programmes of monitors appointed by various U.S. Government Departments. Tim qualified as a Barrister in 1991 and as a Solicitor in 1998.
Tim Langton: tim.langton@btinternet.com
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