Today I want to talk about something that's incredibly important, yet often overlooked. I'm talking about corporate governance, and the five lines of defence that keep our global ecosystem fraud-free and regulations compliant.
As we move forward in this digital age, we must ensure that our systems, processes, and frameworks are designed with integrity and transparency in mind. The stakes are high, and the consequences of failure are severe. But with the right approach, we can create a future where ethics, communication, technology, and toolkits come together to create a seamless, fraud-free experience.
So, what are these five lines of defence? They are:
1. Management and Internal Audit: The first line of defence is the management team and internal audit function. This is where the buck stops, where decisions are made, and where the company's values and principles are upheld.
2. Audit Committee and Independent Directors: The second line of defence is the audit committee and independent directors. These are the guardians of the company's integrity, ensuring that the company is operating in accordance with its values and principles.
3. Statutory Auditors: The third line of defence is the statutory auditors. These are the external experts who provide an independent opinion on the company's financial statements, ensuring that they are accurate and compliant with regulations.
4. Stakeholders and Regulators: The fourth line of defence is the stakeholders and regulators. This includes investors, customers, employees, and the broader community, who all have a vested interest in the company's success and integrity.
5. Regulators: The final line of defence is the regulators themselves. These are the government agencies and organisations that oversee the company's activities, ensuring that they are compliant with laws and regulations.
Ethics, Communication, Technology, and Toolkits
But these five lines of defence must be encircled with something more. They must be encircled with ethics, communication, technology, and toolkits. This is where the rubber meets the road, where the company's values and principles are put into practice.
Ethics is the foundation of any successful company. It's what guides our decision-making, what inspires our employees, and what sets us apart from the competition. Communication is key, as it's how we share our values and principles with the world. Technology and toolkits provide the means to execute our strategy, to track our progress, and to identify and mitigate risks.
As we move forward, we must also adopt a new approach to accounting and reporting. We must move away from entity-based accounting, which focuses solely on the financial performance of the company, and towards ecosystem accounting, which takes into account the broader impact of our activities on the environment and society.
This is where the concept of integrated thinking and reporting comes in. We must respect all six capitals, including physical, human, social, innovation, environmental, and financial. This means considering the impact of our activities on the environment, on our employees, on our customers, and on society as a whole.
To achieve this, we must also adopt new technologies, such as blockchain. This is a decentralized, digital ledger that allows us to capture datasets in real-time, as they happen in the physical environment. No data entry is required, no manual intervention is necessary. The data is captured, verified, and recorded automatically, providing a tamper-proof record of our activities.
A Fraud-Free Future
So, what does this mean for the future? It means a future where ethics, communication, technology, and toolkits come together to create a seamless, fraud-free experience. It means a future where our values and principles are upheld, where our stakeholders are informed and engaged, and where our regulators are confident in our compliance.
It means a future where greenwashing and misreporting are a thing of the past, where we can trust the numbers, and where we can make informed decisions about the companies we invest in and the products we buy.
In conclusion, designing a fraud-free future requires a multifaceted approach, one that combines the five lines of defence with ethics, communication, technology, and toolkits. It requires us to adopt a new approach to accounting and reporting, one that respects all six capitals and takes into account the broader impact of our activities on our economy and our lives. Let's work collaboratively to make this future happen.
Shailesh Haribhakti is an independent director on corporate boards. Twitter: @ShaileshHaribh2
