Risk and Finance

Not all crises are the same. For professions in the business world that deal with the financial risks of business operations (first and foremost, risk managers, controllers, accountants, chartered accountants, chief risk officers and chief finance officers), the corona crisis turned out to be the first crisis in two decades in which they were not the scapegoat.

Just think about it. In 2000 overly high investor expectations and overly ambitious plans by CFOs, CROs and CEOs meant that the Internet hype ended overnight. Stock prices collapsed, and countless Internet companies went bankrupt. In the ‘new economy’, spending was supposedly more important than earning money. Or maybe not. The Internet crisis then led to the sudden discovery of large-scale fraud in other industries. However, due to deteriorating market conditions, executive directors at American utility company Enron (which went bankrupt) and supermarket group Ahold (which was rescued), among others, were no longer able to keep fraud under the radar. Major accounting scandals followed worldwide. Problems also arose with private equity, which has been on the rise in the Netherlands since the turn of the century. Some parties turned out to have overleveraged their private equity holdings too eagerly. The excesses led to stricter legislation and regulations., such as the Dutch Corporate Governance Code, or the American Sarbanes Oxley Act. Regulators such as the Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM) were given more and more responsibilities and powers, which in turn led to the professionalization of the finance and risk departments at the large corporations.

The rise of the chief risk officer

However, this professionalization could not prevent the next financial crisis from occurring. The credit crunch from 2007 onwards primarily affected the financial and banking sectors. Shortly afterwards, the euro crisis followed, plunging the eurozone and Europe as a whole into crisis. It was precisely in the heart of the capitalist system (the financial sector) that risk rules were systematically evaded and violated. As it turned out, compliance was not the solution. A deep economic crisis followed. Banks faltered or went bankrupt. The European Central Bank (ECB) had to come to the rescue. This crisis led to the rise of the chief risk officer in the boardroom. Particularly in financial groups, the CRO plays a pivotal role. He is not only concerned with rules and compliance but also with encouraging proper conduct. Nowadays the combination is also called Hearts & Minds.

 

Back to the beginning. How different is the COVID-19 crisis! The economic crisis that began in 2020 was not the result of large-scale fraud or risky conduct, but of a health crisis. The financial professionals are beyond suspicion in this crisis. This is not a crisis of too much debt, too much risk or poor accounting. The crisis is caused primarily by COVID-19 severely restricting everyone's freedom of action. The fact that the finance professional or the chief financial officer are not the culprits does not mean that they have been left alone in this crisis. On the contrary, turnover losses in many industries were unprecedented in 2020. Whether in private equity, listed companies or family-owned businesses, for the CFO it is all hands on deck during the crisis.

 

 

 

 

 

 

Integrated reporting

Finally, this applies not only to risk management or risk control. Auditors are increasingly busy. Frightened by the crises of the past two decades, consumers and investors demand much more transparency and ‘a good story’ from companies. That good story means: are you dealing transparently and correctly with customers, suppliers, employees and other stakeholders? But also: what does the supply chain look like? How sustainable or circular is it? For organizations, this increased social pressure means that they no longer only have to report on financial matters, but also on matters such as sustainability and good governance. Integrated reporting, it is called. What started out as the Sustainability Report, in which companies talk about their sustainability aspirations, is increasingly becoming a central part of business operations and therefore accounting practices.

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De nieuwste governance inzichten op een rij

 

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