In my interactions with many corporate executives, I get the sense that if the business units they lead do not generate revenues, then the discussion around return on investment should be one that they are exempt from. Well, the answer is ‘that is a misconception.’ Business landscapes have evolved with technology at the center of ferocious competition due to excellent product offerings. Because competition is stiff and the complexity of environment litigation is highly likely. So we do need the legal profession to not only represent businesses but interpret legal documents as entities manage legal risks. Nothing can happen with efficiency without technology as such information technology is the heart beat of processing. And because businesses aim to maximize profitability be it and return on investment level, accounting is inevitable as has been for centuries to report to provide a financial position of the business.
I know understand why Chief Finance Officers make Chief Executive Officers because their language seems to have all the answers to shareholder questions. Are we making money? What is the return on equity? What are our jaws? How are we doing on costs? Should we train staffing? Which assets are we sweating? What is our cost of funding?
IT Return on Investment: With Microsoft based programs such as office 365, azure which embrace cloud optimized cloud storage and data analytics, productivity monitoring has become very easy. So much as performance monitoring is performed for business units, it should be done for information technology. Companies spend vast amounts of capex for systems and it is only fair that shareholders do get a return on technological investments too. Banks run an array of systems both housed outside or within then organization whose responsibility falls under the IT or digital channel teams. Gone are the days systems outage was sorted at the point at which the disruption was rectified. Some pertinent questions business units should be asking are: How long was the system out for? What was the customer impact? Did we lose money? What was the opportunity cost? what was the root cause? Even if their was no tangible loss what could the organization have lost? Business reporting from information technology units needs quantification of costs and revenues to make meaningful sense. In Zambia a common irritating experience is the use of debit cards at gas stations whose point of sale machines are inconsistent. Some common themed responses are: we have not network, oh the battery is low, the system is down. These are unacceptable responses and for a person with a mind of a CFO spells revenues forgone is POS fees which could make a difference if collected. These responses have become business as usual. Business agility at this point is in question. IT resources need to think with a commercial hat and understand that business disruption is revenue generation disruption leaning the bottom line by the day. Performance management systems are very critical and inevitable for IT teams to system up times and customer seamless transactability.
The importance of Business Resilience in the face of disruptive risks: I once wanted to purchase a CD in music moods at ORT airport in Johannesburg, South Africa only to discover the internet was down and as such could not swipe my debit card, so could 15 other clients that morning before boarding our flight save those with hard cash. With the world moving to plastic money, it is system stability is important for seamless operations of businesses. It is for this reason that the role of IT business resilience resources is becoming more and more critical. Resilience extend to data centers which are the most critical as they house all Business platforms. Cyber security is the biggest business disruptor which can cause huge reputational risks and ultimately financial loss through ransomware such as wanna-cry etc. How soon can a data center come up in extreme disruption? Can businesses fail over to recovery sites without customers being affected or staff noticing? How often do we test out vendors recovery capabilities especially the critical ones? These are some of the commercial mindset questions IT staff need to have prompt answers to.
Futuristic food for thought: In tough times as these we are in IT could start exploring avenues of harvesting data center heat to recycle in a clean energy environment to reduce business dependency on the power grid thereby leaning costs that should fatten the bottom line. In house coding and programming should be encouraged to reduce outsourcing costs that are heavy cost drivers. The competitive world requires more and more innovative ideas that will justify business existence.
Why legal counsel need to think like CFOs too: While legal teams have the prestigious luxury of wearing expensive sisal head gear worth a few hundreds of Sterling (GBP) at graduation and in court, they are not exempt from thinking like CFOs. The profession has over the years morphed from ‘Salomon vs Salomon’ thinking of corporate personality to ‘how they can contribute to improving company profitability‘ through saving costs, improving efficiencies and deal structure advisory.
The legal faculty is in this case no different from the IT landscape from an operational investment perspective. More and more legal units are upping their game in understanding business acumen for effectiveness management of legal risks. It is very hard to manage legal risks of an entity that lawyers have little understanding of. In developed nations lawyers understand credit structures, investment banking mergers and acquisitions, General Data Privacy and Protection – GDPR and general business risks to mention but a few. However one very thorny issue is the dependence on external counsel for litigation which should be addressed by in-house counsel as this would save organizations huge costs. The complexity and magnitude of organizations seem to be a key determining factor for use of external versus internal counsel. Smaller institutions usually don’t have the economies of scale to pay legal fees as such manage their litigation risks using in-house counsel compared to larger organizations that can throw money away easily. It is about time that the legal profession started to manage litigation risk with a commercial lens effectively shielding the shareholders equity from erosion through massive settlements. They say if you don’t make the money then help the organization manage losing its cash. Legal risk practitioners should be forward looking to see potential litigation risk in day to day operational incidents in a business. This view aligns perfectly with Basel risk standards.
Technology can improve legal risk management: The use of technological tools such as cloud based for filing and storage, data analytics for projecting trajectories and reporting can improve the efficiencies in the legal faculty. Understanding legal value at risk is just as important as credit and market risk value at risk. However for the effective tracking of VaR investment in data analytics tools is critical. Too much paper work seems to justify delays in contracting and decision making while the biggest risks is ‘amiss decision making’ when in-house counsels lack business acumen which could cost institutions business deals or booking of assets in financial institutions.
Bureaucratic judicial system weighs legal risk management: Judicial systems can be counterintuitive and as such don’t make managing litigation risks any easier. Delayed judgements and lack for business acumen in the judiciary dents the outcome of most inventory of cases that affect the business environment. The judiciary firstly need to be abreast with economic and business trends to them create a more level playing field for management of litigation risk. This factor is a key component in that ease of doing business index.
The Brexit Consultant
