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Compliance Director for International Diagnostics Laboratory in Bridgewater, NJ

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Conselium Executive Search is representing a premier international clinical laboratory diagnostics company experiencing revenue growth and expansion of their global footprint; inclusive of recent expansion of the U.S. market.  The position of Compliance Director will afford you the opportunity to develop the compliance program with great autonomy. Why Join Us: Small organization where you will The post Compliance Director for International Diagnostics Laboratory in Bridgewater, NJ appeared first on Corporate Compliance Insights.

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Gabe Imperato on The Board’s Compliance Oversight Responsibilities [Podcast]

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By Adam Turteltaub adam.turteltaub@corporatecompliance.org The relationship between the board of directors and the compliance team is both an important and still-developing one.  Approximately half of compliance departments report directly to the board, a recent survey of the Society of Corporate Compliance and Ethics and Health Care Compliance Association revealed. Having a strong relationship is increasingly […]

Leading “Connected”

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Q&A with Moore & Van Allen’s Valecia McDowell CCI’s Maurice Gilbert chats with Valecia McDowell, Co-Head of the White Collar, Regulatory Defense and Investigations practice at Moore & Van Allen and a recent addition to the firm’s management committee. Valecia discusses her new role, some of the biggest risks facing companies today and what makes The post Leading “Connected” appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

The Supreme Court’s Escobar Decision and the Impact on False Claims Act Cases (Part I of IV)

Corruption, Crime & Compliance Blog -

This week I am running a series of posts on healthcare fraud enforcement and the False Claims Act.

With all the controversy swirling around the Mueller investigation and prosecutions, the Justice Department continues its aggressive pursuit of healthcare fraud.  The Justice Department’s machinery and resources are producing a steady stream of False Claims Act cases and settlements.

Just like other enforcement areas, companies in the healthcare industry cannot afford to risk losing a False Claims Act case for fear of being excluded from federal healthcare programs.  As a result, companies are frequently drawn to the settlement table in order to resolve a government investigation into healthcare practices.

Years ago, the government prosecutors also secured a round of legislative changes to the False Claims Act which strengthened their hand in prosecuting cases.

Against this trend, however, the Supreme Court’s decision, two years ago, in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. ____ (2016) (here) has complicated False Claims Act cases.  In Escobar, the Supreme Court cut back on the False Claims Act by ruling that the false certification theory of liability required that a claim, “does not merely request payment, but also makes specific representation about the goods or services provided; and the defendant’s failure to disclose “material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”  In applying this standard, the Supreme Court directed lower courts to apply a “rigorous” and “demanding” materiality standard, suggesting that plaintiffs have to show that the government would have refused to pay if it knew of the alleged misrepresentations.

To state the obvious, Escobar is a landmark case in False Claims Act litigation.  The lower courts are struggling with applying Escobar and drawing fair and practical lines.  Of course, the decisions are fact focused and hard to categorize into general principles.

In a significant post-Escobar case, US ex rel. Ruckh v. CMC II LLC et. al, No. 8:2011cv01303, Document 468 (M.D. Fla. 2018)(here), a trial court vacated a nearly $350 million False Claims Act verdict against a group of nursing home operators emphasizing the Escobar standard for “rigorous” and “demanding” materiality and scienter requirements.  The nursing homes failed to maintain a comprehensive care plan required by Medicaid regulations and submitted defective paperwork which showed the defendants never provided the therapy billed to Medicare.

The lower court ruled that the plaintiffs did not offer any evidence of materiality, and specifically noted that such a showing that the defendants’ non-compliance materially and adversely affected the government’s willingness to pay reimbursement for the services.  The trial court stated that it was the plaintiff’s burden to establish materiality, and that had the government known, it would have refused to pay.  In fact, the lower court noted that the government knew about the deficiencies but continued to pay the claims.

The lower courts have been struggling with this line of thinking relating to the plaintiff’s burden to demonstrate materiality, and the issue of government knowledge of non-compliance with regulatory or contractual requirements as an indication that the violation is not material.  Whether the Supreme Court intended this result, it has developed into a controversy, legally and politically.

In an interesting development, the Supreme Court sought the Solicitor General’s views on a petition for certiorari filed in United States ex rel. Campie v. Gilead Sciences. Inc., 862 F.3d 890 (9th Cir. 2017).  The case presents an opportunity for the Supreme Court to address the interplay of the government knowledge and materiality requirement.  I expect the Supreme Court will grant the petition and address the issue.

The post The Supreme Court’s Escobar Decision and the Impact on False Claims Act Cases (Part I of IV) appeared first on Corruption, Crime & Compliance.

Microcap Board Governance: Less Independent, Less Diverse

Corporate Governance -

Microcap Board Governance, a study conducted by Board Governance Research LLC commissioned by the Investor Responsibility Research Center Institute (IRRCi), examines microcap board governance at 160 companies. That represents about  ten percent of all companies with less than $300 million in market capitalization traded on major U.S. stock exchanges. Most microcaps are not included in major indices. Many do […]

The post Microcap Board Governance: Less Independent, Less Diverse appeared first on Corporate Governance.

General Data Protection Regulation (GDPR) Requirements, Deadlines and Facts – CSO

The Compliance & Ethics Blog -

By Alexia Wolker Blogger and Editor If a person was living under a rock last two years, only in this case, he/she would miss news about important technology GDPR or General Data Protection Regulation. Nevertheless, this article will show people more details about this system, trying to fill gaps in your knowledge about it. The […]

The Future of Audit, Compliance, and Analytics: Part I-Introduction

FCPA Compliance & Ethics -

Over the next five podcasts, Matt Kelly and I will be exploring the future of internal audit, compliance and analytics. In Part I, we introduce the topic, explaining why internal audit (IA) is in the midst of a profound transformation, how this transformation will enable to move past its traditional detect function into a more [...]

The post The Future of Audit, Compliance, and Analytics: Part I-Introduction appeared first on Compliance Report.

Samsung and the 2018 Winter Olympics

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By Morten Bennedsen & Brian Henry – INSEAD

 

Many observers will remember the 2018 Winter Olympics for two things: 1) the rapprochement between Seoul and Pyongyang following the participation of North Korean athletes; and 2) the North Korean charm offensive led by the sister of reclusive leader Kim Jong-un. But another invited guest also played a starring role at the Games – Samsung.

Ironically, all the Winter Olympic athletes – except those from North Korea – received special-edition Samsung Galaxy Note 8 devices that were gifted to them by the company upon their departure from Korea. During the Games, Samsung invited all spectators to visit its special pavilion where they could play with virtual reality headsets and other electronic gadgets.

However, the real story behind Samsung’s charm offensive at the Games touches upon many pain points in South Korea’s unique economic and political cultural landscape. Samsung is the largest conglomerate in the country, but has run foul of the law on several occasions and shown to have disregarded basic principles of corporate governance. The current government, led by President Moon Jae-in, has sent a strong message to Samsung and other chaebol leaders (chaebol is a combination of the Korean words for wealth and clan) that they must change their ways. But reform will take time, as the story behind Samsung’s participation at the Games will demonstrate.

A presidential pardon

Samsung’s presence goes back to the presidential pardon of the company’s chair nearly 10 years earlier. The second-generation leader of the family-owned company, Lee Kun-hee, who was 76 at the time of writing, was pardoned in December 2009 by Lee Myung-bak, who was the president of South Korea from 2008 to 2013. In August 2009, a judge convicted Lee Kun-hee of embezzlement and tax evasion and sentenced him to a suspended three-year term in prison and ordered him to pay $100million in fines.

His crimes were to have illegally engineered for his only son and two daughters significant stakes in two Samsung affiliates via the sale of convertible bonds. Blocks of shares were sold to his children at prices far below their market value. When these outrageous transactions became known, Lee was prosecuted. To halt the wheels of justice, he created a slush fund of more than $200million with which to bribe prosecutors and politicians into disregarding his illegal activities. Prosecutors had sought a sentence of seven years in jail and a fine of $350million.

The reason why Lee wanted to ‘gift’ the shareholdings to his three children in the first place dates back to his health problems, which emerged in the late 1990s, when he was diagnosed with cancer. Lee realised then that he needed to put a succession plan in place to enable his heirs to maintain ownership over Samsung and its 70 affiliates. Lee Kun-hee does not now have long to live. In May 2014, he suffered a massive heart attack which left him incapacitated on the top floor of Seoul’s Samsung Medical Centre. Since then, he has been the nominal chair of Samsung, leaving his only son as the de facto chair of the business. No news about his health has since been released, although his succession plan was only partially completed at the time of his sudden health deterioration.

According to Lee Myung-bak, the Samsung leader was pardoned in exchange for his help in securing Korea’s right to host the 2018 Winter Olympics. However, this legendary version of events has been recently contested by a former Samsung vice chair named Lee Hak-soo, who has alleged in court that the underlying reason for the presidential pardon was that Lee Kun-hee had agreed to pay $3.7million in legal fees to an American law firm that was representing a company that Lee Myung-bak’s brother owned. The news of this illegal deal has been covered widely in the Korean press, including the JoongAng Daily, ever since and the former president was placed under investigation for bribery and abuse of power in February 2018.

Samsung promotes Olympic bid

According to the so-called official story, Lee Myung-bak pardoned the Samsung tycoon so that he could participate on the Korean Olympic Committee (KOC), which was gearing up for a third time to win over the International Olympic Committee (IOC) vote in favour of the Korean bid; the first two Korean bids had failed. When Lee Kun-hee agreed to the proposition, the chair of the Korean Olympic Committee wrote that Samsung would provide the ‘reinforcements of a thousand soldiers and ten thousand horses’. This was an oblique reference to the offices and personnel that Samsung eventually put at the disposal of the KOC in key cities around the world to organise meetings and events with the IOC.

Over a period of 18 months, a committed Lee Kun-hee travelled around the world to lobby IOC voters wherever and whenever they met, allocating the resources of Samsung affiliates to win the bid. In 2011, the IOC voted in favour of Korea’s bid to host the games. By this time, Lee’s earlier conviction had been forgotten and he returned to Samsung as chair of Samsung Electronics, the company’s crown jewel.

Second generation strategy shift

Forbes recently estimated that the net worth of Lee Kun-hee was $20.2billion, making him the wealthiest man in Korea. His enterprising father, who had many children, had the good fortune to establish a company a few years before the country became independent. In 1938, the founder, Lee Byung-chul, started a trading firm dealing in foodstuffs. Once Japanese occupation ended, the entrepreneur started diversifying and exporting. When General Park Chung-Hee came to power in a coup d’état in 1963, Lee aligned his business model with the imperial dreams of a dictator who wanted to transform Korea into the world’s first factory of the world. Only those chaebol business leaders who were willing to oblige General Park in his pursuit of power survived. In return, the chaebols were showered with lucrative contracts by the US government as a payback for the general’s dispatch of more than 300,000 troops to the Vietnam War.

Lee Byung-chul was an obliging man – he even gave up control of his own financial institutions so that he could be seen as completely dependent on General Park. While the Korean workforce was known for its prodigious productivity, General Park outlawed trade unions and held wages down to a minimum. Working for a pittance for most of their lives, pensioners have now come to believe that the chaebol families have amassed all their wealth on their backs.

By the time of his death in 1987, Lee Byung-chul had diversified Samsung across so many sectors of the economy that it went well beyond the dreams of most Western conglomerates. For the export market, the company produced cheap goods that competitors in western countries could not undercut. Lee’s third son, Lee Kun-hee, inherited the empire and expanded it even more through organic growth. Around this time, however, China had suddenly emerged

“In the late 1990s, the Asian financial crisis struck South Korea hard, hitting the chaebols that were dependent on export earnings. Along with many others, Samsung nearly went into bankruptcy”

as a major competitor to Korea. Chinese labour was even cheaper than Korean labour and, gradually, China was overtaking Korea in the supply of cheap goods to western countries. Ironically, many chaebol leaders in Korea did not take seriously China’s ascendance as the second factory of the world, until it was too late.

Asian financial crisis

In the late 1990s, the Asian financial crisis struck South Korea hard, hitting the chaebols that were dependent on export earnings. China was impacted, but not so much. Along with many others, Samsung nearly went into bankruptcy. A $40billion programme launched by the International Monetary Fund successfully shored up the economies of Korea, Thailand and Indonesia, the three countries most affected by the sudden devaluation of their currencies. However, many businesses went bust.

The Asian financial crisis was a wake-up call for Lee Kun-hee. To survive, he realised he could no longer compete with Chinese-made exports. His vision suddenly came to him. Samsung must become a leader in innovative, high-quality goods. To this end, he decided to do something that would leave a mark on thousands of Samsung employees. He turned up unannounced at one of the many Samsung factories making phone handsets and instructed all the employees to come down to the shop floor. There, he gathered hundreds of cheap handsets and called them ‘cancers’ for their defects. He then ordered a bulldozer to put about 150,000 of them in a pile before setting them alight. Many employees were sickened by the sight and smell; some became so distraught that they broke down in tears. He then organised a meeting with all his top managers at the Samsung HQ in Seoul where he issued his most famous ultimatum: “You must change everything, except your spouse and children.”

Samsung takes quality to heart

Eventually, management at Samsung got the message. Lee Kun-hee changed Samsung’s business model on many different levels. It entered into joint ventures with partners abroad to manufacture televisions, refrigerators and video equipment. It also used FDI to establish regional headquarters in China, Europe, Singapore and North America. In addition, the second-generation leader set up factories in China and other countries to manufacture consumer electronics and appliances. By 2005, Samsung had established 64 manufacturing and sales subsidiaries and 13 R&D centres around the world. In so doing, Lee Kun-hee was able to take advantage of local talent and be closer to his customers.

Lee Kun-hee also started hiring westerners at management level to stimulate innovation and idea generation, a move that shook up a culture that had been based on internal country-level contracts. Those foreigners who learned the Korean language were more likely to stay than those who did not try to integrate into the local workforce.

Tax evasion comes back to haunt Lee Kun-hee

Even though salaries have gone up in South Korea – the minimum wage has been raised by 16 per cent recently – many pensioners discover that they have almost nothing to live on. In fact, poverty has afflicted 50 per cent of the elderly, the same people who powered the transformation of South Korea into a wealthy country. But the over-65s still have the ballot box to turn to if they want to make reforms happen and in 2017, President Moon Jae-in was elected on a platform to reform the chaebol system.

Lee Kun-hee was one of those leaders who came under renewed scrutiny by the new government. A formal investigation has been launched into his suspected evasion of $7.5million in taxes. It is alleged that he set up more than 260 fictitious bank accounts that held $350million under the names of more than 70 Samsung employees.

In addition, the Moon government has investigated several brokerage firms, including Samsung Securities, for helping Lee Kun-hee conceal his income illegally. Thus far, the brokers have been fined $96.7million.

Third generation succession crisis leads to jail

Following his father’s heart attack in 2014, Lee Jae-yong became the de facto chair of Samsung, but he still did not own enough shares to prevent any disgruntled shareholders from challenging his ownership. He knew Samsung Electronics well, having joined it in 1991, become its president in 2009 and vice chair in 2013. With his father still alive, though, he needed to increase his stockholdings so that he could be considered a controlling shareholder of Samsung. To this end, he engineered a controversial merger between two Samsung affiliates, Samsung C&T and Cheil Industries, in 2015. Activist investor Paul Singer, who owns the US hedge fund Elliott Management, tried unsuccessfully in a South Korean court to block the merger, which went against the interests of minority shareholders.

But soon after the merger took place, Lee Jae-yong was investigated and found guilty of bribing Park Geun-hye, the former president of South Korea from 2013 to 2017. A judge sentenced him to five years in prison; several Samsung executives were also convicted. He spent nearly a year in prison before an appeals court reduced and suspended his sentence in February 2018, releasing him from jail a week before the opening of the Winter Olympics. As for Park Geun-hye, she was convicted in April 2018 of graft, abuse of power, coercion and bribery and sentenced to 24 years in prison.

It remains to be seen whether the former president will have her sentence suspended as was the case with Lee Jae-yong. With an estimated net worth of $7.8billion, and not yet 40 he still has his options open as he gradually returns to his duties of running Samsung, while wisely keeping a low profile. He even disappointed many of his fans by not attending the Winter Olympics. However, the 2015 marriage that he officiated between Samsung C&T and Cheil Industries served him well. He now has a large enough stake in Samsung to make him the controlling stakeholder; furthermore, his stake will increase when he inherits his father’s shares. Thus, the colossal enterprise, consisting of about 62 business units that are involved in dozens of economic sectors, from telecommunications to fashion, from pharmaceuticals to heavy industry, can push ahead with some big deals that were put on hold while the de facto chair was in prison.

Most western consumers know Samsung for its consumer electronics division, but how many would guess that it owns the exclusive The Shilla hotel in Seoul, one of the most luxurious hotels in Asia. Lee Boo-jin, the 47-year-old sister of Lee Jae-yong, has run it since its opening in 1979. Samsung’s 16 publicly-traded companies dominate the South Korean stock exchange (Kospi), accounting for about 30 per cent of the total market capitalisation.

Lee Jae-yong was not the only chaebol leader who was convicted of bribing former president Park Geun-hye. In February 2018, Lotte Group chairman Shin Dong-bin stepped down as head of the chaebol to start serving a sentence of 30 months in prison. Like Samsung, Lotte operates business activities in many sectors of the South Korean economy. His resignation, however, could lead to a major succession crisis in the Shin family, as his older brother has threatened to launch a renewed bid for power.

“Some critics, however, have argued that Samsung was too ubiquitous at the Games to the extent that many Olympic experts are now demanding that corporate sponsors of future Games keep a neutral posture before and during the event”

Constitutional reforms

Meanwhile, the pressure is still on the government to shake up a system that is a holdover from previous pro-chaebol administrations. At the constitutional level, President Moon wants to decentralise power away from the presidency, where power has been concentrated since an independent South Korea was established after World War Two. President Moon has submitted proposals to amend the constitution to create an American-style presidential system with a four-year presidency and a two-term limit. He also wants to lower the legal voting age from 19 to 18 and delegate more power to the office of the prime minister.

The debates leading up to these political reforms have been driven by the long-running abuses of power at the Blue House, the home to South Korean presidents. Nearly all former presidents have been accused of corruption, but the country’s reputation for poor corporate governance is changing for the better. And Paul Singer of Elliot Management is back again. He recently bought a $1billion stake in Hyundai Motor Group, so that he could put pressure on the auto giant to improve its corporate governance.

Reforming the chaebols

Chaebols are where social and economic power have resided in Korea ever since WW2. During his presidential campaign, President Moon promised to reform the chaebols. The top five chaebols, Samsung, Lotte, LG, Hyundai, SK – are worth by some estimates more than half of the country’s export-driven economy. As conglomerates, the chaebols consist of hundreds of affiliates whose brands dominate almost all sectors of the South Korean economy, to such an extent that they suffocate entrepreneurial activity. Each operates like a mutually exclusive partnership, making it difficult for start-ups to enter the supply chain. Even on the inside, the chaebols are known to negotiate lopsided terms with their external contractors that render it difficult for them to expand their scope and size.

To make the playing field more level between the chaebols and their contractors has been one of President Moon’s main goals. In June 2017, he appointed as chair of South Korea’s Fair Trade Commission, a man who holds that the fruits of economic growth should be evenly distributed. Kim Sang-jo, otherwise known as the ‘Chaebol Sniper’, has called upon chaebols to end their exploitation and voluntarily improve the lives of contractors, small business owners and start-ups.

Déjà vu for nut-rage lady

His job will not be easy. Take the case of Heather Cho, the eldest daughter of the chair of Hanjin Group, a chaebol that owns Korean Air among many other businesses. In 2014,
she made headlines as the ‘nut-rage heiress’ while on a plane owned by her father. Unhappy with the crew’s way of serving macadamia nuts, she struck a flight steward and demanded the aircraft return to its terminal in New York. She was convicted of a violation of aviation laws, sentenced to a year in jail and was released after a few months following a ruling by an appeals court. Four years later and Heather Cho has recently been named the CEO of Hanjin’s hotel chain.

Now that Lee Jae-yong is back, Samsung will benefit from his leadership but will also reap the rewards of his father’s hard work at attracting the Winter Olympics to Korea. Some critics, however, have argued that Samsung was too ubiquitous at the Games to the extent that many Olympic experts are now demanding that corporate sponsors of future Games keep a neutral posture before and during the event. Perhaps the Chaebol Sniper would agree with this proposal.

 

About the Authors:

Morten Bennedsen is the André and Rosalie Hoffmann Chaired Professor of Family Enterprise and Academic Director of the Wendel International Centre for Family Enterprise, INSEAD.

 

 

Brian Henry, PhD, is a Research Fellow, INSEAD

Machine makers beginning to step up to global warming challenge

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Some of the world’s most influential companies are in the capital goods sector. These are the businesses that make the machines, parts and equipment that many high-emitting industries rely on. It’s encouraging, therefore, that capital goods makers are starting to step up to the challenge of limiting global warming to below two degrees, as set out in the Paris Agreement.

Image: Channels: Business StrategyTags: CDPmanufacturingScience Based TargetsSchneider ElectricSiemens

Board effectiveness in the Gulf

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By Jane Valls – Executive Director, GCC Board Directors Institute

 

 

The GCC Board Directors Institute (GCC BDI) undertakes a biannual board effectiveness survey. Our 10th anniversary survey of GCC boards has highlighted significant progress realised in the institutionalisation and effectiveness of boards in the region, fostered primarily by the evolution of the regulatory standards for listed companies and banks and of the Companies Law for privately held companies.

While there has been a convergence in the regulatory standards, which in the future may facilitate initiatives aiming to unify regulatory frameworks across the region, the challenges facing directors across the GCC remain diverse. They vary not only by sector and company ownership, but also based on the legal responsibility placed by local regulators on boards. The approach of regulators in terms of rule-making and enforcement has also been an important determinant of the effectiveness of GCC boardrooms.

Based on the results of the survey and interviews conducted by GOVERN on behalf of GCC BDI in preparation of the survey, GCC BDI has made as series of recommendations for both regulators and board members to guide governance reform in the region. While some recommendations are policy-oriented, others are aimed at boards to help guide further governance improvements. Ultimately, these recommendations are aimed at advancing the state of corporate governance implementation in the region, to facilitate capital raising by companies and to attract investment.

Regulators should maintain dialogue with the private sector

While the body of corporate governance regulations has been developing impressively over the past decade, board members feel that regulators should maintain an active dialogue with boards and senior executives to ensure that governance requirements produced by securities, banking and other regulators are aligned and to seek private sector feedback on specific provisions. While recent revision of corporate legislation in some GCC countries has eliminated certain discrepancies, board members feel that inconsistencies remain, notably in regulations applying to listed companies and banks.

In particular, directors are concerned that in some countries the speed of governance reforms has been excessively rapid for boards to effectively integrate the required changes, especially in the current context where boards have to also ensure compliance with a number of regulatory requirements concerning tax, labour and other laws. In this regard, the transition of corporate governance codes from ‘comply or explain’ to a mandatory approach has its risks as board members are concerned that not all provisions are relevant and appropriate for companies of all sizes and sectors.

“Whilst GCC companies are increasingly operating beyond their borders in order to conquer new markets, the composition of their boards is rarely international, with the exception of blue-chip-listed companies that have realised the benefit of international expertise”

These observations underscore the need for better public-private dialogue, which can be facilitated by regulatory consultations allowing companies and industry associations to provide feedback. Such consultations may help address specific concerns of board members, such as remuneration limits. In addition, survey participants thought that enhanced dialogue among regulators is necessary to ensure regulatory expectations are aligned.

Family–owned companies need to be better incentivised and supported

The governance of private, family-owned companies has been much discussed, but remains largely unaddressed, except in the recent revision of corporate legislation in the UAE, Saudi Arabia and Kuwait where it strengthens provisions bearing on board level governance as well as shareholder rights and transparency. At the same time, many of these companies in the GCC remain ‘too big to fail’ and the consequences of their governance deficiencies might have an impact beyond their own sustainability.

Further measures are needed to improve the governance of family companies by creating positive incentives for families to adopt good governance and integrity practices. Considering many large, family-owned companies interact with the government as suppliers or contractors, governments have an opportunity to request that its suppliers have appropriate governance structures in place, including at board level.

Non-binding recommendations and toolkits to support the implementation of such practices, ensuring their compliance with domestic laws, can be produced by government entities or governance NGOs operating in the region. For instance, board evaluation templates can be provided to boards of family companies through Chambers of Commerce or industry associations. Case studies of leading family companies that illustrate how the adoption of good governance practices is implemented by boards and at the operational level would be useful.

SOE governance requires custom governance approaches

While some state-owned enterprises (SOE) in the region, especially those with publicly -listed equity, operate according to world-class governance standards, others lag significantly behind the private sector, especially in terms of their transparency. Many state-owned enterprises continue to operate without boards or do not constitute boards for their subsidiaries (Amico, 2017). In order to encourage private sector development in the region, governments need to ensure that SOE boards are subject to standards similar to those prevalent in the private sector.

State-owned companies, whether wholly or partially state-owned, should be encouraged to adopt formal governance structures and processes that are explicit about board nomination processes. Director appointments to boards of state-owned companies should be subject to a rigorous qualifications standard and it might be useful to limit the number of mandates that a given board member might hold on SOE boards, as has been done for listed companies.

As recommended by the OECD, the incidence of public servants and high-level decision-makers, such as ministers and secretaries of state, serving as directors on boards of state-owned enterprises should be limited. However, to the extent that they are appointed to represent the interests of governments on boards of SOEs, they should be remunerated.[1] Furthermore, directors appointed by the state should be equally responsible before the law as any other directors and SOEs should not be exempt from the relevant governance standards that apply by virtue of their listing or other activities.

Board diversity in the GCC needs to be proactively fostered

As highlighted by the survey results, GCC boardrooms remain quite undiversified. The persistently low representation of female board members in the GCC, as well as lack of diversity from the perspective of age and nationality, is noteworthy. While GCC companies are increasingly operating beyond their borders in order to conquer new markets, the composition of their boards is rarely international, with the exception of blue chip listed companies that have realised the benefit of international expertise.

As large GCC companies are increasingly operating across the region, it is advisable for them to recruit talent from other jurisdictions. Indeed, despite the close cultural similarity of GCC countries, the presence of GCC country nationals on boards outside their home country is rather low. This is unfortunate, considering the limited pool of directors in individual countries and the potential benefit that boards could derive from the expertise of nationals of neighbouring countries as well as international experience.

Seeking to address gender imbalance remains an important corporate and policy objective as female representation on boards in the GCC remains one of the lowest globally. While some progress has been realised due to the efforts of organisations, such as the 30% Club and REACH, most jurisdictions in the region have decided not to introduce quotas requiring female representation on boards. Requiring boards to demonstrate that they have considered female candidates for any new board openings can foster a culture of gender inclusiveness and this approach is currently being experimented with in the UAE. It is recommended that other regulators in the region adopt similar non-binding approaches, including voluntary quotas and reporting, and requiring companies to disclose measures that have adopted to improve board diversity, including in terms of gender.

Board and executive appointment, remuneration and succession planning requires attention

Aligning executive and board remuneration with corporate performance has been an important governance topic in the wake of the financial crisis. Although, given the controlled structure of GCC companies, compensation arrangements have been less controversial in the region than internationally, a number of regulators in the region have introduced limits on board member compensation, which the private sector feels constrains the recruitment of qualified board members who are increasingly expected to be held accountable.

Board members feel that limitations on board remuneration are detrimental to attracting qualified talent to the region’s boards. Considering that the majority of board representatives on boards are appointed by or are indeed the controlling shareholders, the agency risks are relatively low. On the other hand, significantly constraining the remuneration of board members can limit the ability of GCC boards to recruit international talent, especially in light of the growing legal responsibilities placed on board members.

Succession planning for executives and board members requires more careful reflection. As regulators have introduced additional provisions that link board tenure and independence, at least for listed companies and banks, the relatively long tenure of GCC board members will likely shorten. This will require an active approach by GCC boards to recruit talent and will require putting in place board evaluation mechanisms to determine gaps and proactively seek board members with the required profile.

Risk management processes need to be reviewed and reinforced

Risk management involves the establishment of accountability for managing risks, specifying the types and degree of risk that a company is willing to accept in pursuit of its goals and how it will manage the risks it faces. In light of the multiplication of risks that board members say they face, it is critical that suitable and scalable risk management processes are introduced. In high-tech and sophisticated industries, such as banking, further processes to manage risks may be necessary and it is recommended to introduce the role of a chief risk officer reporting to the board.

Board charters and manuals should clearly set out board responsibility in overseeing the risk management system to ensure companies comply with the applicable laws and regulations, including environmental, labour, tax and other sector specific requirements. The responsibilities of audit and risk management committees should be made clear and these committees should feature a sufficient number of non-executive and independent directors in line with international best practices.

For companies with international operations, charters and manuals should specify how risks will be addressed and reported enterprise-wide, including in subsidiaries. A number of large SOEs and family conglomerates have established subsidiary boards in order to cascade the responsibility for strategy and risk management. It is important to empower these boards in order to hold them accountable for performance at the subsidiary level.

The ownership structure of GCC companies requires strong conflict of interest provisions and disclosure

The controlled ownership structure of GCC corporates necessitates the introduction of strong conflict of interest provisions, which need to be integrated in board charters and other relevant documents governing the board interactions. While conflict of interest situations have been addressed in detail by regulators for listed companies and banks, further attention is required to ensure that board members are not conflicted and when conflicts of interest emerge, adequate procedures are in place to address them. The introduction of rules governing related party transactions (RPTs) are crucial in this regard as is the role of the audit committee in overseeing RPTs. The introduction of a lead director role is also a potential way forward to reinforce board independence in the GCC.

For these provisions to be effective, members of the board, key executives and controlling shareholders should have an obligation to inform the board where they have a business, family or other special relationship outside of the company that could affect their judgement with respect to a particular transaction or matter affecting the company. Disclosure of the ownership structure, as well as the profile of the board, including executive and non-executive members, is critical in this regard as it allows shareholders to get insight into the company governance practices.

“As a result of the recent revision of corporate governance codes and corporate laws in the region, the minimal frequency of board meetings is set by the relevant legislation”

Improving disclosure of privately-held companies is important as it remains limited to financial information only and often does not include management discussion and analysis. Large companies and those operating in regulated sectors should be required to produce a corporate governance report that does not merely indicate board and committee composition but presents, in a meaningful manner, key corporate decisions and the rationale underpinning them.

Conduct of board meetings requires further formalisation and support by a board secretary*

Although board dynamics cannot be regulated and need to stem from a corporate culture that is conducive to good governance and accountability, it is important that board interactions are structured around key issues that the board is accountable for, while limiting any intervention of the board in the day-to-day operations, which should remain the prerogative of the management. As a result of the recent revision of corporate governance codes and corporate laws in the region, the minimal frequency of board meetings is set by the relevant legislation.

While the actual dynamics and conduct of board meetings are difficult to control through regulatory provisions, the introduction of a dedicated board secretary professionalises the interactions among board members and ensures that the board remains focussed on crucial issues. Directors report that in light of the challenging global macro-economic climate and region-specific challenges, they are required to spend more time on the exercise of their duties. It is therefore important to channel their time to the most value-adding activities.

A dedicated board secretary who is not a member of the executive team (i.e. head of the legal department) can help professionalise board discussions and other crucial functions, such as organising board evaluations. As highlighted in this report, board evaluations are increasingly being introduced across GCC companies and need to be harnessed as a method to identify weaknesses in board performance and actively address them, not only by provision of training to board members.

Conclusion

GCC BDI’s fifth report shows that board effectiveness and corporate governance have come a long way in the GCC in the past 10 years. Corporate and system failures globally, and an increasingly complex regulatory environment regionally, have sharpened the focus on good governance. From being an honorary role a decade ago, the report shows that director responsibilities are taken more seriously in the region today. While there has been much improvement in the last 10 years, there is still more to do and our report shows that the key area of focus for improvement is still board composition and directors’ capabilities. In addition to better board composition, regulators are increasingly recommending that boards introduce the role of a professional board secretary and conduct annual board evaluations. These are both subjects that need more focus and attention as GCC boards still do not fully understand the benefits of a professional board secretary and a well-executed external board evaluation as key drivers of board performance and effectiveness.

For a copy of the GCC BDI’s 5th Board Effectiveness Report, please see our website www.gccbdi.org * In this report we assume the term board secretary and company secretary to have the same meaning.

 

About the Author:

Jane Valls joined the GCC Board Directors Institute (GCC BDI), based in Dubai, in January 2016 as Executive Director.  GCC BDI is a not for profit company founded in 2007 with the Mission to improve corporate governance and professional directorship in the GCC. The founding fathers – Saudi Aramco, SABIC, Investcorp, Emirates NBD, McKinsey, PwC, Heidrick & Struggles and Allen & Overy – continue to support GCC BDI today and form the Board of Governors. GCC BDI runs open and tailored workshops for board directors, conducts board evaluations and corporate governance assessments as well helping companies to implement their corporate governance and board effectiveness frameworks. GCC BDI now has a network over 700 senior board directors who have been through its workshops and board evaluations and this group is probably one of the most influential networks in the GCC.

Jane has over 15 years of international experience in corporate governance and working with board of directors. She is an accredited Corporate Governance trainer with the International Finance Corporation (IFC), part of the World Bank Group, and is an accredited trainer with the Ethics Institute, as well as being a Certified Ethics Officer. From 2010 to 2015, Jane was the CEO of the Mauritius Institute of Directors (MIOD), one of the leading Institutes in Africa.  She was the first Chairperson of the African Corporate Governance Network from 2013-2015, a network which she helped to found, bringing together 17 Institutes of Directors from across the African continent.

Footnote:

1. In some GCC countries, such as Kuwait, legal provisions prevent civil servants appointed on boards of SOEs from being remunerated.

Boards must embrace the 21st century

Ethical Boardroom Feeds -

By Karola McArthur – Director at M&D Associates

 

 

 

Governance of corporate entities over the past 100 years is essentially rules-based. Since the Great Depression thousands of rules have been set for companies to guard the public from investment loss and economic collapse.

This follows the 20th Century belief that rules restrain human nature to yield to greed and hence, given the opportunity, the high likelihood that leaders put personal gain over their public responsibility.

Despite the rules, hundreds of listed corporates and state-owned enterprises have collapsed, causing holes in pension funds, institutional and private investors’ portfolios, as well as job losses and overall negative economic impact. In South Africa, African Bank, Steinhoff, the ‘state capture’ and Eskom scandal, and rumours in the banking sector of misleading financial practices are just some of the latest sagas. In the UK, the collapse of Carillion is top of the list. In the Eastern economies, various admissions of fake quality information and bribery charges caused stock prices to decline. Germany has its VW scandal and, in the US, Wells Fargo is battling along after creating millions of fake customer accounts and charging customers undue insurance premiums.

Of course, the circumstances in each collapse are different, but with the unfolding stories of financial acrobatics to enhance profits, designed within the rules and signed off by auditors, we have to wonder if rule-based ethics are the panacea to protect investors and economies, or if we need to review our governance approach to fit current and future realities.

Corporate governance guidelines have recognised the need for change

The King Report and Code on Corporate Governance provide guidelines for the governance structures and operation of companies in South Africa. Compliance is a requirement for companies listed on the Johannesburg Stock Exchange, but also applies to unlisted large companies and the public sector, and is subscribed to in most of Sub-Saharan Africa.

Unlike other corporate governance codes, such as Sarbanes-Oxley, the code is non-legislative and is based on principles and practices that promote an ‘apply and explain’ approach. The overriding philosophy of the code is to achieve sustainability, i.e. the medium- and long-term survival of a company and its environment, underpinned by effective, ethical leadership and transparent reporting. In light of external disruptive factors, deteriorating ethical leadership and in the face of failing public and private enterprises, the King IV Code became effective from April 2017, making, in our opinion, significant changes to the board’s authority. Keeping with the previous directive to steer organisations by setting the strategy and defining the governance approach thereof, it is now making the board responsible for:

  • Approving policies and plans to effect organisational strategy
  • Oversight and monitoring of the execution and resulting performance of the strategy
  • Enhanced ethical and transparent reporting on performance and sustainable value creation, including the publishing of initial audit findings and mitigating actions taken

Thus, the board’s role moved from the pure oversight of outcomes to also include the oversight and ongoing monitoring of inputs, i.e. the effective execution of strategy through ethical leadership, supported by enhanced transparency.

Obstacles to implementation 

Faced with the new codes, many board directors question if additional governance mechanisms are needed and, if so, how this should be practically implemented, given the limited time independent directors typically have, the heavy burden of sub-committees and reports, and the complexity of tighter strategic execution oversight envisaged.

In our discussions with various independent directors across different industry sectors and some with international appointments, we found that none of these reported on any significant changes made to their governance processes or systems since 2010 (King III directives).

This is despite the fact that most agreed with the following statements:

  • A financial audit does not adequately address the long-term sustainability of a business, e.g. ticking the box of ‘licence in place’ doesn’t address the question of ‘is the licence sustainable going forward?’
  • Internal auditors also often neglect the issue of long-term business viability as they typically focus on current procedures, processes and compliance
  • While management must focus on a chosen strategic path, the board‘s responsibility is to question the strategic path itself, yet, at the most three days per annum of pondering subjective strategic proposals from management are dedicated to this
  • Monitoring of strategic execution has thus far been limited to assessing outcome-based metrics, mainly financial and market share performance. Board directors have little or no insight to more detailed strategic execution of the plan
  • The board’s understanding of execution progress on agreed critical strategies relies entirely on what management decides to report
  • There is a lack of an integrated view linking strategy, risks, capability gaps, performance management, market and financial outcomes. Typically, sub-committee discussions in risk, people and finance forums have very little in common because their integrated natured is not understood nor transparent

Discussing the practicality of implementing tighter strategy and execution oversight for medium and long-term sustainability, the respondents cited challenges, such as not wanting to impact the excellent relationship they have with management, the lack of deep insights into the industry, time constraints to provide meaningful strategic alternatives and the complexity of the company strategy itself as it stretches from consolidation to diversification, from IT to HR, and tackles a myriad of strategic market issues.

We ’get’ all of the above, particularly the need to maintain an excellent relationship with management. But in the case of Steinhoff or VW, for example, almost all directors interviewed cited that this was facilitated  by an ‘extremely charismatic CEO’ misleading the board. Is this truly a good excuse? Dominant charismatic leaders might require even more oversight and careful assessment of their assertive and persuasive proposals. They need to be balanced with a considerate and analytical chairperson and the involvement of more industry experts on the board asking pertinent questions.

We have tools that help governance in the 21st Century

The solution of a ‘strategic audit’ was rejected by most of the interviewed directors. They advocated that this added another committee, it lacked dynamic insights if done once a year, causing high audit cost and additional organisational disturbance. We therefore turned our attention to alternative practical and dynamic oversight mechanisms, leveraging technology.

Assuming the integrated drill-down system is in place, we further investigated what the key missing questions are that board directors should interrogate annually or on a quarterly basis in a strategic sustainability review

Understanding that the board has to focus its time and attention, priority must be given to the critical strategies, outcomes and elements in the organisation that determine sustainability. If examined closely, only four to six core strategies are truly essential to ensure sustainability. These are, typically, strategies to ensure that key assets are safe, to sustain the ‘licence to operate’, to increase cash flow return on investment, to meet customers evolving needs, to attract and retain employees, and to be a responsible corporate citizens.

With the focus on these key strategies, boards then need the capability to examine the organisational alignment to these and assess whether the company has the right competencies in place, can manage associated risks and monitor if the desired impact is being achieved. The key requirement to executing good governance is having an integrated, objective and real-time view of the organisation’s actions (lacking in many companies). That can be established using software available on the market. Implementing the software makes the process efficient, using a cascading approach. This is illustrated below.

The technology and structured view allows board directors to drill into areas of their individual expertise without losing the overall picture of the organisation’s strategic pursuits. It allows the board to focus the organisation on its strategic priorities and provides deep insights of where the organisation progress stands, without elaborate, subjective management reports. Implementing software is seen as difficult by more technology-challenged individuals and often deemed costly, when you take into account licence fees, training and the change management required to achieve the discipline of effective usage. However, the ‘return on management time invested’ is manifold, taking the organisation and its governance into the digital age and creating meaningful insights.

What are the key interrogations we are missing at board level?

Assuming the integrated drill-down system is in place, we further investigated what the missing key questions are that board directors should interrogate annually or on a quarterly basis in a strategic sustainability review. In our discussions with directors, we narrowed down on the following, currently missing, investigations to prevent collapses due to mismanagement or lack of ethical conduct:

In-depth annually review

1. Are the fundamental basics in place or at risk to operate sustainably For example, are the basic capabilities required to operate at required standards and to be competitive, in place? Boards assume this is in good order, but do you know?

2. Are executives’ KPIs explicitly linked to the strategic pursuit and to ethical behaviour? If only linked to financial results, this may detract them from pursuing the strategy and seeking easier or more opportunistic ways to success, especially if the ‘how’, i.e. the desired behaviour, has not been specified

3. Has the board validated that the majority of income streams and profit growth are indeed coming from the core business pursuit. Has it assessed alignment  of the overarching financial goal with ‘the business we are conducting’? If income growth is not coming from the core, the business pursuit may be wrongly stated to investors (e.g. it’s a financing business not a trading one), raising suspicion of financial acrobatics. Steinhoff is a good example of this missing investigation

4. Is the governance approach and board composition in line with the fast pace of the 21st Century, enabling agility, demanding transparency, ensuring ethical conduct, being alert to market changes and swiftly acting on critical issues? When last did the board critically review its own conduct and assess its effectiveness in view of the changed environment? Is the board construct aligned to balance the executives’ strengths and weaknesses?

Quarterly review

1. Does the board have integrated, objective reporting on key programmes and a transparent view of risks, progress and outcomes? Is the board truly comfortable with the level of objective knowledge it has on how the company is run, management actions taken, focus on strategy execution, risk mitigated and outcomes achieved, at all times?

2. Has the board become too close to management and hence lost objectivity?Signs of discomfort are if non-execs continuously defend executive members, close off discussions on management behaviour, or are kept deliberately from contact with lower levels in the organisation. Statements, such as ‘we have to trust management’ are not in line with the trust investors place into boards to be their eyes and ears on the ground

3. Is the broader strategy and the underlying assumptions still right? Given fast-changing markets, doing this once a year seems no longer sufficient. You need to give effect to the statement that the board needs to continuously assess if the chosen strategic path is right. Industry expertise on board level is non-negotiable and board meetings should include regular, external expert inputs on key business issues

4. Does the board have the right priority programmes in place to achieve sustainable outcomes? Are new needs arising and should others be closed, despite sunk cost, to free capacity for more relevant programmes? Has the board listened to the concerns on the ground floor?

5. What actions have been taken by management and the board to correct the course of key programmes in light of recent market dynamics or underperformance? Is a re-prioritisation required and is the board acting with the agility the market demands without losing caution?

In conclusion, it seems that although boards have come far to strengthen oversight, boards and governance approaches still need to go a long way in adapting to the new dynamics and tools available in the 21st Century, while learning from the many corporate collapses where boards were found wanting. Key questions remain unasked, technology to create transparency has not been sufficiently embraced and boards remain in the dark with regards to the true ongoings in the organisation. For those seeking change, also mitigating their risk of reputational damage or legal pursuits, this article aimed to provide guidance.

 

About the Author:

Karola McArthur (MBA Cranfield UK) has held positions of European Marketing Director in London, Head of Strategy & Operations at Deloitte, Group Strategy Head at Liberty Insurance, and is now a Director at M&D Associates. Karola excells in corporate and competitive strategy, working in Europe, the US and across sub-Sahran Africa. Dedicated to shareholder value creation she is a passionate driver of innovative strategies and their effective implementation. She successfully managed to improve the valuation of many large businesses, created mergers and managed their integration, effected business turnarounds, and steered the privatization of a state-owned enterprise.

Joseph Pozsgai-Alvarez: Telling corrupt actors to be less corrupt doesn’t help anyone

The FCPA Blog -

Almost by necessity, most articles, reports and academic papers discussing the topic of corruption start by establishing that corruption is morally wrong and economically/politically detrimental. The point, beyond providing the reader with the basic information required to venture through the rest of the text, has become a sort of ritual with little more meaning than to ascertain the pertinence of the topic. 

FCPA Compliance Report-Episode 395, Ellen Hunt on the Role of the Board in Compliance

FCPA Compliance & Ethics -

In this episode, I visit with Ellen Hunt, the Chief Audit Executive and Ethics & Compliance Officer at AARP.  She is a lawyer and ethics & compliance professional with extensive management experience in designing, implementing and operating ethics and compliance programs including board governance and reporting, designing ethics education, managing enterprise risk processes as well [...]

The post FCPA Compliance Report-Episode 395, Ellen Hunt on the Role of the Board in Compliance appeared first on Compliance Report.

State of Internal Audit 2018

Corporate Compliance Insights -

Impact and Opportunities MetricStream’s latest survey on the state of internal audit finds auditors focused on delivering timely insights on key risks, aligning audit planning with business strategy and improving audit processes and operational effectiveness. Manu Gopeendran details the survey’s findings. For years, internal auditors have been the eyes and ears of the enterprise, providing The post State of Internal Audit 2018 appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

Preparedness and Continuity Planning for Monsoon Risks

Risk Management Magazine -

The 2017 monsoon season was particularly devastating for the Indian region. In addition to the casualties and injuries, countless businesses—many that provide international services—were impacted and suffered millions of dollars in damages. But monsoons are becoming less predictable, which is why organizations in affected areas should be considering them in their preparedness plans.

Planning business operations around monsoon season can help prevent infrastructure damage, personal injuries, continuity disruptions and also shorten recovery periods.

Monsoon in Southeast Asia

A monsoon is a seasonal, prevailing wind in tropical regions lasting from several weeks to months and brings heavy rainfall. It commonly occurs in Southeast Asia and India. By contrast, a typhoon is a large tropical storm that can be of the same magnitude but lasts for only a few days.

The Southeast Asian season’s heaviest concentration of rainfall occurs between June and September. But with continuous climate change, its seasons are becoming more erratic and are presenting greater damage and flood risks. The 2017 season caused floods and associated landslides of a scale unmatched in recent years.

India, Bangladesh and Nepal were most affected, where a combined 1,200-plus lives were lost and 45 million people were displaced. While the flooding of river basins remains a major cause of disruption in rural and low-lying areas, a combination of problems attributed to the increased flood risk, including:

  • the lack of river connectivity,
  • inadequate drainage and reservoir systems,
  • rapid urbanization, and
  • illegal construction in urban areas.

The 2015 United Nations Global Assessment Report on Disaster Risk Reduction estimated India’s average annual economic loss due to disasters at $9.8 billion; $7 billion was attributed to floods.

Information technology companies should certainly recognize monsoon seasons in their preparedness plans. India is a renowned home to many export-driven IT service companies that earn revenue by billing global clients on hourly bases for the services, so even a day’s lull in activity can result in a loss of millions in revenues. Additionally, any shutdown questions the efficiency of its businesses to recover from disasters.

We saw an example of such susceptibility in Chennai, a south Indian city that is a critical IT hub and leading automobile manufacturing center (often called “the Detroit of India”). In November 2015 – well after the season traditionally ends – Chennai was hit by a monsoon and weather systems that lasted for most of the month. The incessant rains inundated the entire city with the worst flooding in a century, leading to the suspension of power supplies by 60% on Dec. 1, 2015. On Dec. 2, the city was declared a disaster area. Operations were suspended in some of the city’s IT hubs and automobile production facilities were also disrupted. The Chennai International Airport was also closed until Dec. 6. The disaster resulted in economic losses of $3 billion as per Aon Benfield, and India’s General Insurance Corporation claims reached nearly $300 million. Just as staggering was that many organizations experienced difficulties implementing their business continuity plans; they simply had not planned for that level of the disaster. Some of them either shifted their employees or transferred the workload to campuses located in the other cities.

Solutions Call For a Change in Approach

Though several big firms claim to be prepared, with some even ISO 22301 certified for business continuity, there are plenty that do not plan for the incessant monsoon rains beyond what is considered the traditional time of the season.

Why? Because preparation and strategy for dealing with oncoming natural disasters has historically been reactive, rather than proactive. Recent years demonstrated that it is time for risk managers to incorporate new ideas from these lessons learned and implement them now that the season has arrived.

Organizations with locations in at-risk areas should reassess their business continuity management strategies; their priorities should be employee safety, manpower readiness, data protection and backup availability. Those gunning for resilient working environments may categorize a monsoon with a high-risk rating due to the impact it has on the business and the probability that is almost certain to occur annually. Companies could prepare specific strategies for a period of heavy rainfall which may cripple their business for weeks.

Many organizations have their alternate sites located in the same city or within a few miles. That is a fine first step, but when a citywide disaster strikes, it is likely that the secondary sites would also shut down. In such situations, the need arises for an alternate provision in another geographical location. Work could be carried out in business centers in unaffected areas, and distributing teams across different locations can also be effective strategies. Besides multiple disaster recovery strategies, organizations could consider a decentralized or specialized business continuity plan, thus ensuring the risks pertaining to particular locations are clearly identified and strategies specific to those risks are adopted.

Regarding the availability and security of data, an organization may decide to have multiple disaster recovery sites located in different zones as a monsoon progresses, since the probability of all the centers being affected simultaneously is quite low.

The availability of communication channels is also vital for the business processes, highlighting the need for multiple internet service providers and emergency notification systems so as to narrow the downtime. With hourly billing revenues hanging in the balance, the economic impact requires data recovery time to be brought down to a span of minutes and not just hours. The cost involved may be high and thus, a proper cost benefit analysis must be carried out.

Ultimately, when a city’s economy and success is tied to a sector’s survival, civic and business leaders should collaborate on effective preparedness plans. This ensures its residents are safe and their jobs are not in jeopardy when the storm has passed.

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