Regulating for Growth
While Australia’s relatively strong regulatory environment can be seen as an advantage for exporters, local business remains more concerned about the associated risks than their global counterparts. So how can we get the regulatory balance right?
As the digital age reshapes the Australian economy, one of the great challenges is how best to ensure the right level of governance is applied to emerging new sectors and to established industry sectors as they evolve. Over the past couple of years, the majority of debate has revolved around data security and privacy with Europe’s recently adopted General Data Protection Regulation a case in point. At the same time, the current Banking Royal Commission in Australia is highlighting the need for better governance in our financial sector and the Productivity Commission’s draft report on Competition in the Australian Financial System suggests our regulators need to be strengthened.
The good news is many Australian businesses understand getting governance and risk right is vital if they’re going to thrive in the digital economy where transparency and customer trust are invaluable assets. Conversely, in the KPMG Enterprise and Fairfax Media Growth 2.0 survey undertaken earlier this year, increased regulatory pressure was nominated as being a potential handbrake on growth.
But while the survey found our mid-market business leaders concerned about regulatory risk, they importantly understood ongoing changes to the regulatory environment are inevitable. The key is to be well-prepared and understand good governance helps business leaders build stronger, long-lasting company cultures. With issues of trust in business and institutions firmly in the spotlight, many of nation’s small to medium enterprises understand getting governance and risk right is essential to continue to thrive in the digital economy.
Australia and the global perspective
In KPMG’s most recent Global CEO Outlook 2018, the majority of Australian CEOs in fact cited other factors as greater inhibitors to growth than regulatory risk – including cyber security and emerging or disruptive technology. As KPMG Partner Justin Jamieson suggests, Australia’s relatively strong regulatory environment can be seen as a competitive advantage on some levels as our exports are trusted in overseas markets. However with the KPMG study also finding local CEOs nearly 10 per cent more likely to worry about regulatory change than their global counterparts, Jamieson says regulation can’t be too onerous. This is especially true in a world where business has to be quicker to market than in the past, he says.
24 per cent of Australian CEOs compared with 15 per cent of global CEOs cited regulatory risk as the greatest threat to the organisation’s growth
Demand for what our business provides is growing internationally and we are well placed, despite regulatory requirements, to meet this demand.
(Mid-market business, Education / Training)
PART TWO
Getting the balance right
The 2017 KPMG study on CEO sentiment Keeping us up at night found many business leaders believe regulation is often introduced to counter media noise or political agendas. A strong theme was that government often turns to a one size fits all approach, which does not always reflect the commercial realities of individual industries and sectors.
The recent Fairfax Media and KPMG Enterprise Growth 2.0 survey confirmed that getting governance, risk and compliance practices right is a fine line and they need to be constantly reviewed. Mid-sized businesses that do get the balance right stand to benefit enormously in the future.
Finally, having the necessary risk management and controls in place ensures a company is better placed when it comes to a transition event such as a change in leadership or ownership or even a large capital raising.
It is clearly a constant for business but one that needs to be addressed internally for success.
mid-sized businesses surveyed say regulatory change is one of their greatest barriers to growth
Regulatory risk is our biggest challenge and the uncertainty that surrounds that becomes a priority.
(Mid-market business, Banking / Financial Services)
PART THREE
Leadership to ensure house in order
With mid-market enterprise leaders relatively confident in their plans for growth in the current environment, they understand change needs to come from within. Our survey respondents know they need to get their internal cultures right to be able to respond quickly to regulatory changes when they need to. They also understand internal governance has to be driven by management and the importance of having the right leadership team in place to implement these changes so the business can continue successfully.
of respondents in mid-sized businesses are concerned that internal factors – from leadership and culture to operational and staffing issues – may be a risk to growth.
[We have] great staff on board who are all going in the same direction, [and] solid leadership who are wanting to progress and grow our organisation.
(Mid-market business, Banking / Financial Services)
Overall, KPMG's Justin Jamieson says it is critical that organisations are not overburdened by governance issues but it is important they get it right. He says it plays an enormous part in earning community trust which underpins the success of every business.
“Getting it right means ensuring you have the right board and committee structure and the right questions about governance are being asked in the business. If you get it right, it provides a greater level of confidence right across the business.”
Enterprise is a specialist division of KPMG Australia, dedicated to advising the emerging, private and mid-market. We work with established entrepreneurs, family businesses, not-for-profits, and fast-growing companies to build thriving organisations.
By bringing our diverse expertise together, we give our clients the confidence to focus on the things that will truly make an impact and help them grow.
At Enterprise, we offer an extensive range of audit, tax, accounting and advisory services to help clients through every stage of their life cycle, whether starting, growing or exiting their businesses.