I find that firms under-report profits in tax statements to reduce bribe demands. In response, bribe-extorting bureaucrats exploit differences in firms' opportunity costs of time to screen out firms with resources to pay bribes. In equilibrium, high-profit firms with cash holdings pay larger bribes in return for shorter paperwork processing times. Firms that hide profits face costs, because they cannot use unreported profits to acquire capital. Firms also make voluntary bribe payments to bureaucrats in return for government services and face associated positive search costs. Results hold only for firms without bureaucratic connections.
{"title":"Search and Screening Costs of Bribes","authors":"Jafar M. Olimov","doi":"10.2139/ssrn.3385509","DOIUrl":"https://doi.org/10.2139/ssrn.3385509","url":null,"abstract":"I find that firms under-report profits in tax statements to reduce bribe demands. In response, bribe-extorting bureaucrats exploit differences in firms' opportunity costs of time to screen out firms with resources to pay bribes. In equilibrium, high-profit firms with cash holdings pay larger bribes in return for shorter paperwork processing times. Firms that hide profits face costs, because they cannot use unreported profits to acquire capital. Firms also make voluntary bribe payments to bureaucrats in return for government services and face associated positive search costs. Results hold only for firms without bureaucratic connections.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124318791","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-05-12DOI: 10.17159/1727-3781/2021/V24I0A10732
Motseotsile Clement Marumoagae
This paper discusses the challenge of the misappropriation of retirement fund assets by trustees, fund asset managers and retirement funds’ administrators. It demonstrates that retirement fund members lose substantial retirement benefits due to the illegal and unlawful conduct of those who manage and administer retirement funds. It evaluates whether the South African legislative framework offers retirement funds and their members adequate protection from activities that may compromise the delivery of the pension promise such as: mismanagement; fraudulent activities; gross negligence; and the outright looting of retirement fund assets. In particular, this paper illustrates that the law in South Africa does not deter would-be wrongdoers from acting in a manner that may compromise the benefits expected by retirement fund members when they exit their funds. It advocates the adoption of adequate preventative legislative measures that would make it difficult for anyone to act in a manner that would compromise retirement fund members' benefits in South Africa.
{"title":"The Need to Adopt Preventative Measures to Combat the Misappropriation of Retirement Fund Assets","authors":"Motseotsile Clement Marumoagae","doi":"10.17159/1727-3781/2021/V24I0A10732","DOIUrl":"https://doi.org/10.17159/1727-3781/2021/V24I0A10732","url":null,"abstract":"This paper discusses the challenge of the misappropriation of retirement fund assets by trustees, fund asset managers and retirement funds’ administrators. It demonstrates that retirement fund members lose substantial retirement benefits due to the illegal and unlawful conduct of those who manage and administer retirement funds. It evaluates whether the South African legislative framework offers retirement funds and their members adequate protection from activities that may compromise the delivery of the pension promise such as: mismanagement; fraudulent activities; gross negligence; and the outright looting of retirement fund assets. In particular, this paper illustrates that the law in South Africa does not deter would-be wrongdoers from acting in a manner that may compromise the benefits expected by retirement fund members when they exit their funds. It advocates the adoption of adequate preventative legislative measures that would make it difficult for anyone to act in a manner that would compromise retirement fund members' benefits in South Africa.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122108483","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In today’s world, “[t]he threat of conventional warfare has changed, and we have to recognize that information can be a weapon (SCL, 2020)”. How can information serve as a weapon one might ask? What if data mining and analysis combined with targeted messaging were used as weapons and could influence politics globally? The Cambridge Analytica scandal not only answers this question but illustrates this concept. The Cambridge Analytica data breach was a data leak whereby millions of Facebook users' personal data was harvested without consent and used for political advertising (Chan, 2020). This paper will explore the details of the Cambridge Analytica scandal, the role of social media giant Facebook in the incident, and the impact to privacy and associated privacy principles. Additionally, the paper will explore the concept of privacy and its ethical, sociological, and philosophical underpinnings.
{"title":"Data Privacy - The Ethical, Sociological, and Philosophical Effects of Cambridge Analytica","authors":"P. Wagner","doi":"10.2139/ssrn.3782821","DOIUrl":"https://doi.org/10.2139/ssrn.3782821","url":null,"abstract":"In today’s world, “[t]he threat of conventional warfare has changed, and we have to recognize that information can be a weapon (SCL, 2020)”. How can information serve as a weapon one might ask? What if data mining and analysis combined with targeted messaging were used as weapons and could influence politics globally? The Cambridge Analytica scandal not only answers this question but illustrates this concept. The Cambridge Analytica data breach was a data leak whereby millions of Facebook users' personal data was harvested without consent and used for political advertising (Chan, 2020). This paper will explore the details of the Cambridge Analytica scandal, the role of social media giant Facebook in the incident, and the impact to privacy and associated privacy principles. Additionally, the paper will explore the concept of privacy and its ethical, sociological, and philosophical underpinnings.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-02-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123745813","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we have provided the introduction to the Enterprise Risk Management (ERM) process by defining ERM, highlighting key keys of an ERM program in an organization, and discussing the COSO and ISO ERM frameworks. Reasons for ERM implementation by firms are also discussed along with the benefits that the organizations gain by integrating their strategic planning with the ERM process. Financial, infrastructure, reputational, and marketplace related benefits are discussed and shown to be leveraged by the firms that implement an effective ERM practice. The key challenges along with their solutions are discussed in this paper where it is shown that ERM practice must be established and implemented keeping best practices in mind so that any unforeseen failures in the future can be avoided. The paper further highlights the important hallmarks of an effective ERM program where nine major points are discussed that came out from a survey addressing the ERM best practices and features. Finally, a case study of the LEGO company is presented.
{"title":"Enterprise Risk Management: Benefits and Challenges","authors":"Ayan Tyagi","doi":"10.2139/ssrn.3748267","DOIUrl":"https://doi.org/10.2139/ssrn.3748267","url":null,"abstract":"In this paper, we have provided the introduction to the Enterprise Risk Management (ERM) process by defining ERM, highlighting key keys of an ERM program in an organization, and discussing the COSO and ISO ERM frameworks. Reasons for ERM implementation by firms are also discussed along with the benefits that the organizations gain by integrating their strategic planning with the ERM process. Financial, infrastructure, reputational, and marketplace related benefits are discussed and shown to be leveraged by the firms that implement an effective ERM practice. The key challenges along with their solutions are discussed in this paper where it is shown that ERM practice must be established and implemented keeping best practices in mind so that any unforeseen failures in the future can be avoided. The paper further highlights the important hallmarks of an effective ERM program where nine major points are discussed that came out from a survey addressing the ERM best practices and features. Finally, a case study of the LEGO company is presented.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"183 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131504444","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-05-07DOI: 10.1017/9781108759458.039
C. Coglianese, J. Nash
Regulatory compliance is vital for promoting the public values served by regulation. Yet many businesses remain out of compliance with some of the regulations that apply to them — presenting not only possible dangers to the public but also exposing themselves to potentially significant liability risk. Compliance management systems (CMSs) may help reduce the likelihood of noncompliance. In recent years, managers have begun using CMSs in an effort to address compliance issues in a variety of domains: environment, workplace health and safety, finance, health care, and aviation, among others. CMSs establish systematic, checklist-like processes by which managers seek to improve their organizations’ compliance with government regulation. They can help managers identify compliance obligations, assign responsibility for meeting them, track progress, and take corrective action as needed. In effect, CMSs constitute firms’ own internal inspection and enforcement responsibilities. At least in theory, CMSs reduce noncompliance by increasing information available to employees and managers, facilitating internal incentives to correct instances of noncompliance once identified, and helping to foster a culture of compliance. Recognizing these potential benefits, some government policymakers and regulators have even started to require certain firms to adopt CMSs. But do CMSs actually achieve their theoretical benefits? We review the available empirical research related to CMSs in an effort to discern how they work, paying particular attention to whether CMSs help firms fulfill both the letter as well as the spirit of the law. We also consider lessons that can be drawn from research on the effectiveness of still broader systems for risk management and corporate codes of ethics, as these systems either include regulatory compliance as one component or they present comparable challenges in terms of internal monitoring and shaping of organizational behavior. Overall, we find evidence that firms with certain types of CMSs in place experience fewer compliance violations and show improvements in risk management. But these effects also appear to be rather modest. Compliance in large organizations generally requires more than just a CMS; it also demands appropriate managerial attitudes, organizational cultures, and information technologies that extend beyond the systematic, checklist processes characteristic of CMSs. We address implications of what we find for policy and future research, especially about the conditions under which CMSs appear to work best, the types or features of CMSs that appear to work better than others, and the possible value of regulatory mandates that firms implement CMSs.
{"title":"Compliance Management Systems: Do They Make a Difference?","authors":"C. Coglianese, J. Nash","doi":"10.1017/9781108759458.039","DOIUrl":"https://doi.org/10.1017/9781108759458.039","url":null,"abstract":"Regulatory compliance is vital for promoting the public values served by regulation. Yet many businesses remain out of compliance with some of the regulations that apply to them — presenting not only possible dangers to the public but also exposing themselves to potentially significant liability risk. Compliance management systems (CMSs) may help reduce the likelihood of noncompliance. In recent years, managers have begun using CMSs in an effort to address compliance issues in a variety of domains: environment, workplace health and safety, finance, health care, and aviation, among others. CMSs establish systematic, checklist-like processes by which managers seek to improve their organizations’ compliance with government regulation. They can help managers identify compliance obligations, assign responsibility for meeting them, track progress, and take corrective action as needed. In effect, CMSs constitute firms’ own internal inspection and enforcement responsibilities. At least in theory, CMSs reduce noncompliance by increasing information available to employees and managers, facilitating internal incentives to correct instances of noncompliance once identified, and helping to foster a culture of compliance. Recognizing these potential benefits, some government policymakers and regulators have even started to require certain firms to adopt CMSs. \u0000 \u0000But do CMSs actually achieve their theoretical benefits? We review the available empirical research related to CMSs in an effort to discern how they work, paying particular attention to whether CMSs help firms fulfill both the letter as well as the spirit of the law. We also consider lessons that can be drawn from research on the effectiveness of still broader systems for risk management and corporate codes of ethics, as these systems either include regulatory compliance as one component or they present comparable challenges in terms of internal monitoring and shaping of organizational behavior. Overall, we find evidence that firms with certain types of CMSs in place experience fewer compliance violations and show improvements in risk management. But these effects also appear to be rather modest. Compliance in large organizations generally requires more than just a CMS; it also demands appropriate managerial attitudes, organizational cultures, and information technologies that extend beyond the systematic, checklist processes characteristic of CMSs. We address implications of what we find for policy and future research, especially about the conditions under which CMSs appear to work best, the types or features of CMSs that appear to work better than others, and the possible value of regulatory mandates that firms implement CMSs.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129536632","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Congress routinely enacts statutes mandating that federal agencies adopt specific regulations. For example, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, it required the Securities and Exchange Commission (SEC) to adopt a regulation compelling energy companies to disclose payments they make to governmental entities. Although this disclosure regulation is specifically required by the Dodd-Frank Act, it is also a regulation subject to disapproval by Congress under a process outlined in a separate statute known as the Congressional Review Act (CRA). In 2017, Congress passed a joint resolution disapproving the SEC’s disclosure rule under the process authorized in the CRA. That resolution nullified the SEC’s rule, but it did not amend the Dodd-Frank Act. It did, though, make relevant a provision in the CRA that prohibits an agency from adopting any regulation that is “substantially the same” as one that Congress has disapproved. As a result, the SEC still must issue a disclosure regulation, but it cannot issue one that is substantially the same as the old one. Although normally this might not pose a major problem to an agency, the Dodd-Frank Act not only requires a disclosure regulation, it also provides considerable detail about what must be included in that regulation. The SEC faces what appears to be a conundrum. On the one hand, it must adopt a regulation that comports with the detailed provisions of the Dodd-Frank Act. But on the other hand, it is prohibited under the CRA from adopting a regulation that is “substantially the same” as the old regulation. What is the agency to do? Earlier this year, the SEC announced a proposal for a new disclosure regulation that differs in several ways from the old one—but the proposed regulation would also appear in some respects to violate the Dodd-Frank Act’s requirements for how the disclosure rule should be designed. In this paper—originally submitted as a public comment on the SEC’s proposed rule—I explain that the SEC need not violate the Dodd-Frank Act to comply with the CRA. The CRA conundrum can be readily solved. The CRA’s choice of the imprecise word “substantially” invites the SEC to reconcile both statutes. The agency can do so by ensuring that those features of a new regulation that remain in the SEC’s discretion are not substantially the same as in the old rule. After all, a statute such as the CRA can only impose an obligation on an agency over matters over which it has a choice. The SEC just needs to make sure that any re-issued rule is no longer substantially the same in terms of portions of the rule over which the agency can exercise its discretion. Even with detailed statutory provisions, such as the one in the Dodd-Frank Act, an agency nevertheless will still have some discretion available to it. It can exercise that discretion in a substantially different way even if by making available opportunities for waivers or by extending deadl
国会经常颁布法令，要求联邦机构采用具体的规章制度。例如，2010年国会通过《多德-弗兰克华尔街改革与消费者保护法》(Dodd-Frank Wall Street Reform and Consumer Protection Act)时，要求美国证券交易委员会(SEC)制定一项法规，强制要求能源公司披露它们向政府实体支付的款项。虽然这一披露规定是多德-弗兰克法案特别要求的，但它也是国会根据另一项被称为国会审查法案(CRA)的单独法规概述的程序而不批准的规定。2017年，国会通过了一项联合决议，否决了SEC根据CRA授权的流程制定的披露规则。该决议取消了SEC的规定，但没有修改《多德-弗兰克法案》。不过，它确实在CRA中制定了相关条款，禁止机构采用与国会不批准的法规“实质上相同”的法规。因此，SEC仍然必须发布披露法规，但它不能发布与旧法规基本相同的法规。虽然通常情况下，这可能不会对机构构成重大问题，但《多德-弗兰克法案》(Dodd-Frank Act)不仅要求制定披露规定，还对该规定必须包括的内容提供了相当详细的规定。证交会似乎面临着一个难题。一方面，它必须采用一项符合多德-弗兰克法案详细条款的监管规定。但另一方面，CRA禁止采用与旧法规“基本相同”的法规。该机构该怎么做?今年早些时候，SEC宣布了一项新的信息披露法规提案，该提案在许多方面与旧法规有所不同，但在某些方面，拟议的法规似乎也违反了《多德-弗兰克法案》(Dodd-Frank Act)关于如何设计信息披露规则的要求。在这篇最初作为对SEC拟议规则的公众评论提交的论文中，我解释说SEC不需要违反《多德-弗兰克法案》来遵守CRA。CRA难题很容易解决。CRA选择了“实质上”这个不精确的词，这使得SEC不得不调和这两项法规。该机构可以通过确保新规定中保留在SEC自由裁量权范围内的特征与旧规则中的特征在本质上不同来做到这一点。毕竟，像CRA这样的法规只能在机构可以选择的事项上对其施加义务。SEC只需要确保任何重新发布的规则在该机构可以行使其自由裁量权的部分方面不再本质上相同。即使有详细的法律规定，如多德-弗兰克法案，一个机构仍然会有一些自由裁量权。它可以以一种完全不同的方式行使自由裁量权，即使是提供放弃的机会或延长遵守的最后期限。对CRA规定的不赞成并不能免除机构制定符合其他法定义务的规定的义务。
{"title":"Solving the Congressional Review Act’s Conundrum","authors":"C. Coglianese","doi":"10.2139/ssrn.3567230","DOIUrl":"https://doi.org/10.2139/ssrn.3567230","url":null,"abstract":"Congress routinely enacts statutes mandating that federal agencies adopt specific regulations. For example, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, it required the Securities and Exchange Commission (SEC) to adopt a regulation compelling energy companies to disclose payments they make to governmental entities. Although this disclosure regulation is specifically required by the Dodd-Frank Act, it is also a regulation subject to disapproval by Congress under a process outlined in a separate statute known as the Congressional Review Act (CRA). \u0000 \u0000In 2017, Congress passed a joint resolution disapproving the SEC’s disclosure rule under the process authorized in the CRA. That resolution nullified the SEC’s rule, but it did not amend the Dodd-Frank Act. It did, though, make relevant a provision in the CRA that prohibits an agency from adopting any regulation that is “substantially the same” as one that Congress has disapproved. As a result, the SEC still must issue a disclosure regulation, but it cannot issue one that is substantially the same as the old one. Although normally this might not pose a major problem to an agency, the Dodd-Frank Act not only requires a disclosure regulation, it also provides considerable detail about what must be included in that regulation. \u0000 \u0000The SEC faces what appears to be a conundrum. On the one hand, it must adopt a regulation that comports with the detailed provisions of the Dodd-Frank Act. But on the other hand, it is prohibited under the CRA from adopting a regulation that is “substantially the same” as the old regulation. What is the agency to do? Earlier this year, the SEC announced a proposal for a new disclosure regulation that differs in several ways from the old one—but the proposed regulation would also appear in some respects to violate the Dodd-Frank Act’s requirements for how the disclosure rule should be designed. \u0000 \u0000In this paper—originally submitted as a public comment on the SEC’s proposed rule—I explain that the SEC need not violate the Dodd-Frank Act to comply with the CRA. The CRA conundrum can be readily solved. The CRA’s choice of the imprecise word “substantially” invites the SEC to reconcile both statutes. The agency can do so by ensuring that those features of a new regulation that remain in the SEC’s discretion are not substantially the same as in the old rule. After all, a statute such as the CRA can only impose an obligation on an agency over matters over which it has a choice. The SEC just needs to make sure that any re-issued rule is no longer substantially the same in terms of portions of the rule over which the agency can exercise its discretion. \u0000 \u0000Even with detailed statutory provisions, such as the one in the Dodd-Frank Act, an agency nevertheless will still have some discretion available to it. It can exercise that discretion in a substantially different way even if by making available opportunities for waivers or by extending deadl","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130974485","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Direct experience of a peer’s punishment might make non-punished peers reassess the probability and consequences of facing punishment and hence induce a change in their behavior. We test this mechanism in a setting, China, in which we observe the reactions to the same peer’s punishment by listed firms with different incentives to react - state-owned enterprises (SOEs) and non-SOEs. After observing peers punished for wrongdoing in loan guarantees to related parties, SOEs - which are less disciplined by traditional governance mechanisms than non-SOEs - cut their loan guarantees. SOEs whose CEOs have stronger career concerns react more than other SOEs to the same punishment events, a result that systematic differences between SOEs and non-SOEs cannot drive. SOEs react more to events with higher press coverage even if information about all events is publicly available. After peers' punishments, SOEs also increase their board independence, reduce inefficient investment, increase total factor productivity, and experience positive cumulative abnormal returns. The bank debt and investment of related parties that benefited from tunneling drop after listed peers’ punishments. Strategic punishments could be a cost-effective governance mechanism when other forms of governance are ineffective.
{"title":"Punish One, Teach A Hundred: The Sobering Effect of Punishment on the Unpunished","authors":"Francesco D’Acunto, Michael Weber, J. Xie","doi":"10.2139/ssrn.3330883","DOIUrl":"https://doi.org/10.2139/ssrn.3330883","url":null,"abstract":"Direct experience of a peer’s punishment might make non-punished peers reassess the probability and consequences of facing punishment and hence induce a change in their behavior. We test this mechanism in a setting, China, in which we observe the reactions to the same peer’s punishment by listed firms with different incentives to react - state-owned enterprises (SOEs) and non-SOEs. After observing peers punished for wrongdoing in loan guarantees to related parties, SOEs - which are less disciplined by traditional governance mechanisms than non-SOEs - cut their loan guarantees. SOEs whose CEOs have stronger career concerns react more than other SOEs to the same punishment events, a result that systematic differences between SOEs and non-SOEs cannot drive. SOEs react more to events with higher press coverage even if information about all events is publicly available. After peers' punishments, SOEs also increase their board independence, reduce inefficient investment, increase total factor productivity, and experience positive cumulative abnormal returns. The bank debt and investment of related parties that benefited from tunneling drop after listed peers’ punishments. Strategic punishments could be a cost-effective governance mechanism when other forms of governance are ineffective.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114972249","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
First, the goal of this paper is to examine this case study about Heller Financial as they focus on enterprise risk management (ERM), credit risk (CR) and operational risk management (ORM). Heller Financial began implementing the process that would evaluate the overall procedures that now makes their ERM program successful. Heller decided that they would adapt to risk management a process that would eventually lead senior management to create a Credit Risk Officer (CRO) as well as, the creation the (ORO) Operational Risk Officer. Both of these officers, Heller believes will contribute to the sustainability at Heller Financial, in an attempt to avoid credit risk exposure, management risk exposure, and operational risk exposure.
{"title":"A Case Study Heller Financial","authors":"Ty Branch","doi":"10.2139/ssrn.3429122","DOIUrl":"https://doi.org/10.2139/ssrn.3429122","url":null,"abstract":"First, the goal of this paper is to examine this case study about Heller Financial as they focus on enterprise risk management (ERM), credit risk (CR) and operational risk management (ORM). Heller Financial began implementing the process that would evaluate the overall procedures that now makes their ERM program successful. Heller decided that they would adapt to risk management a process that would eventually lead senior management to create a Credit Risk Officer (CRO) as well as, the creation the (ORO) Operational Risk Officer. Both of these officers, Heller believes will contribute to the sustainability at Heller Financial, in an attempt to avoid credit risk exposure, management risk exposure, and operational risk exposure.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131305305","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Governance at banks, especially major banks, requires further reform, especially with respect to incentives. Supervisors are concerned that incentives may make executives prone to take “excessive” risks. Shareholders are concerned that banks rarely earn their cost of capital.What’s needed is a bonus system that explicitly includes the objectives of both supervisors and shareholders, as well as one that balances risk and reward for both the executive and the bank. To this end we propose that senior managers and material risk takers must defer a significant portion of any bonus and that this deferred portion be paid in the form of write-down bonds, with write-downs to occur if the bank incurs fines or makes a loss. The executive can only realize cash from the deferred portion of the bonus award at the end of the deferral period, when it is much more certain that the originally stated profits will not have been reversed by fines, restitutions or defaults. During the deferral period, accrued bonus will effectively constitute a first-loss reserve for the bank. It will bear loss before common equity, whilst the bank is a going concern. The possibility of such loss should concentrate the minds of management on preventing it. This should address the concerns of supervisors and the public at large. For shareholders, such a bonus system ensures that, if the bank makes a profit, they will be paid first, not management. Before executives are awarded any bonus, shareholders will first be compensated for the cost of the equity that they provide to the bank. However, that cost will be lower, the greater is the cumulative first-loss reserve available to absorb loss. In sum, under the revised bonus system executives will both be responsible and rewarded for the risks they decide the bank should take. They will bear first loss, but share in the economic profit that the bank does make.
{"title":"Rebalance bankers’ bonuses: Use write-down bonds to satisfy both supervisors and shareholders","authors":"T. Huertas","doi":"10.2139/ssrn.3336186","DOIUrl":"https://doi.org/10.2139/ssrn.3336186","url":null,"abstract":"Governance at banks, especially major banks, requires further reform, especially with respect to incentives. Supervisors are concerned that incentives may make executives prone to take “excessive” risks. Shareholders are concerned that banks rarely earn their cost of capital.What’s needed is a bonus system that explicitly includes the objectives of both supervisors and shareholders, as well as one that balances risk and reward for both the executive and the bank. To this end we propose that senior managers and material risk takers must defer a significant portion of any bonus and that this deferred portion be paid in the form of write-down bonds, with write-downs to occur if the bank incurs fines or makes a loss. The executive can only realize cash from the deferred portion of the bonus award at the end of the deferral period, when it is much more certain that the originally stated profits will not have been reversed by fines, restitutions or defaults. During the deferral period, accrued bonus will effectively constitute a first-loss reserve for the bank. It will bear loss before common equity, whilst the bank is a going concern. The possibility of such loss should concentrate the minds of management on preventing it. This should address the concerns of supervisors and the public at large. For shareholders, such a bonus system ensures that, if the bank makes a profit, they will be paid first, not management. Before executives are awarded any bonus, shareholders will first be compensated for the cost of the equity that they provide to the bank. However, that cost will be lower, the greater is the cumulative first-loss reserve available to absorb loss. In sum, under the revised bonus system executives will both be responsible and rewarded for the risks they decide the bank should take. They will bear first loss, but share in the economic profit that the bank does make.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115302130","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we disagree with the proposal in the Financial Conduct Authority’s consultation paper CP19/4 to exclude the head of legal of regulated firms from the Senior Manager and Certification Regime (“SMC from the perspective of regulated firms, their legal function, and their head of legal. We argue that, most importantly, there is a public interest benefit to inclusion: head of legal accountability under the SM&CR can contribute to the promotion of effective risk management and the prevention of wrongdoing within regulated firms. To support this conclusion, we argue that that: - the inclusion of the Head of Legal is consistent with the purposes and objectives of the SMC - to exclude the Head of Legal may have negative implications for the Head of Legal, the legal function, and the resilience of the firm itself; in particular, it may serve to undermine the authority and independence of the Head of Legal and the legal function within the firm; - CP19/4 does not consider the professional duties of in-house lawyers as solicitors; these professional duties support and complement the core regulatory duties of regulated firms; - certain of the grounds for exclusion which are cited in CP19/4 are either based on unsupported claims or conflict with better evidence drawn from research. To take one example, the assertion that the dominant function of lawyers within regulated firms is as providers of narrow legal advice which does not constitute an “activity” for the purposes of SMC and - whilst we acknowledge that certain of the grounds for exclusion which are cited in CP 19/4 may have merit, these grounds for exclusion should be balanced against the benefits of inclusion. We consider that some of the residual concerns, for example, as to the impact of inclusion on the availability of legal professional privilege, or the protection of confidential information, are overstated.
{"title":"A Response to the Financial Conduct Authority’s Consultation Paper CP19/4","authors":"T. Clark, R. Moorhead, S. Vaughan, A. Brener","doi":"10.2139/SSRN.3368896","DOIUrl":"https://doi.org/10.2139/SSRN.3368896","url":null,"abstract":"In this paper we disagree with the proposal in the Financial Conduct Authority’s consultation paper CP19/4 to exclude the head of legal of regulated firms from the Senior Manager and Certification Regime (“SMC from the perspective of regulated firms, their legal function, and their head of legal. We argue that, most importantly, there is a public interest benefit to inclusion: head of legal accountability under the SM&CR can contribute to the promotion of effective risk management and the prevention of wrongdoing within regulated firms. To support this conclusion, we argue that that: \u0000 \u0000- the inclusion of the Head of Legal is consistent with the purposes and objectives of the SMC \u0000 \u0000- to exclude the Head of Legal may have negative implications for the Head of Legal, the legal function, and the resilience of the firm itself; in particular, it may serve to undermine the authority and independence of the Head of Legal and the legal function within the firm; \u0000 \u0000- CP19/4 does not consider the professional duties of in-house lawyers as solicitors; these professional duties support and complement the core regulatory duties of regulated firms; \u0000 \u0000- certain of the grounds for exclusion which are cited in CP19/4 are either based on unsupported claims or conflict with better evidence drawn from research. To take one example, the assertion that the dominant function of lawyers within regulated firms is as providers of narrow legal advice which does not constitute an “activity” for the purposes of SMC and \u0000 \u0000- whilst we acknowledge that certain of the grounds for exclusion which are cited in CP 19/4 may have merit, these grounds for exclusion should be balanced against the benefits of inclusion. We consider that some of the residual concerns, for example, as to the impact of inclusion on the availability of legal professional privilege, or the protection of confidential information, are overstated.","PeriodicalId":198853,"journal":{"name":"Compliance & Risk Management eJournal","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122599701","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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