Governance and compliance drive enterprise growth

KPMG’s latest Pulse research amongst private enterprise leaders reveals a sector that is high on confidence despite the challenges around them. Over nine in ten are confident about their future growth prospects notwithstanding a low-growth economy, tax and employment cost rises at the last Autumn Budget, and a volatile and unpredictable global environment.

This is highly encouraging and a testament to the resilience and determination of our array of private and family-owned small and medium-sized businesses.

Nathan Chrimes

Partner

KPMG in the UK

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Stress-testing future assumptions

KPMG’s latest Pulse research amongst private enterprise leaders reveals a sector that is high on confidence despite the challenges around them. Over nine in ten are confident about their future growth prospects notwithstanding a low-growth economy, tax and employment cost rises at the last Autumn Budget, and a volatile and unpredictable global environment.

This is highly encouraging and a testament to the resilience and determination of our array of private and family-owned small and medium-sized businesses.

Governance and compliance as a platform for growth

With this in mind, it is somewhat surprising that regulatory compliance comes a long way behind areas such as technology, workforce & skills and sustainability amongst leaders’ investment priorities to support growth. Only 11% named compliance in their top two priorities, while technology was far out in front at 67%. Workforce (36%) and sustainability (34%) were also a long way ahead.

Regulation and compliance may often be viewed as ‘defensive’ items rather than active growth generators – but in reality they are the building blocks that underpin and make possible the growth that leaders are striving for.

Business leaders rate availability and cost of capital, and the performance of the capital markets, as primary issues. Our view of the market at KPMG is that availability of capital is good – both in terms of bank debt and private equity. It is the price of that capital (and the level of equity valuations) that is really critical – and this is where the importance of robust governance, controls processes and regulatory compliance comes in, because these factors can have a significant influence on the pricing that companies can access and the valuation of their businesses. In particular, those businesses with a strong ESG and sustainability profile are increasingly likely to be able to secure financing and investment at better rates. It can be an important factor in a deal scenario too.

It’s true that some items of the regulatory landscape are moving slowly or are on hold. The UK’s corporate governance reform bill for example is still subject to consultation with its timetable uncertain. The EU’s regulations on sustainability reporting (the Corporate Sustainability Reporting Directive) have been delayed for smaller businesses and are again subject to uncertainty. The UK is still consulting on the introduction of the International Sustainability Standards Board’s (ISSB) sustainability reporting standards and their implementation date (and applicability to unlisted businesses) is as yet unconfirmed.

Readying the business for increasing scrutiny

However, all these things are coming. The direction of travel is clear: regulation of businesses (both listed and private) is increasing, and at the same time investors and other stakeholders have rising expectations of strong governance, transparency and commitment to responsible and sustainable business approaches.

What’s more, with all of the investments that businesses are making in technology, ensuring that the new systems, tools and processes are safe and secure, and compliant with regulatory requirements (such as data privacy and protection), is a key consideration. There is increasing focus on ensuring that AI solutions are ethical, responsible and fair, subject neither to bias nor hallucinations. Founding AI efforts on a strong governance framework is essential. Without all of this, companies’ investments may not deliver the expected results.

The ambition and drive of UK private enterprises is to be applauded and encouraged. One of the key ways in which firms such as KPMG can support is through audit and related services, which are valuable for assessing systems of governance, processes and compliance. These are ultimately key to helping a business grow in a controlled and sustainable way. This isn’t just a nice-to-have: it is actually one of the surest ways of achieving long-term profitability, value generation and corporate growth.

Are you confident in your systems of governance and compliance? Please don’t hesitate to get in touch if there is any aspect that you would like to discuss.

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