COMPUTER BUSINESS REVIEW

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Issue Date: February 2008

Regulatory and corporate strategy

21 February 2008

With an increasing focus on regulation, companies must be able to both shape and respond to the regulatory agenda in traditional and, increasingly, emerging markets. KPMG's experience and work with many businesses around the world has shown that this is not easy to put into practice, particularly in the communications sector.
The 2007 KPMG Bringing Regulation into the Boardroom survey, based on interviews with over 60 senior managers in telecommunication operators around the globe, revealed that senior management and the regulatory function, whilst not poles apart, may have different priorities. The regulatory respondents of this survey are primarily preoccupied with the longer-term impact of regulation on corporate strategy. This is understandable given that changes such as new price controls are often signalled several years ahead of actual implementation. Senior management, on the other hand, is far more concerned about how regulation affects the business today, and the profits they make.
"This begs the question as to whether these companies actually have a defined regulatory strategy," said David Thomas, head of Communications Regulations at KPMG UK. Senior managers are keen to see the regulatory function make a bigger contribution to more immediate commercial challenges. In contrast, the responses from the regulatory professionals argue that the longer-term nature of regulation, and its impact on many parts of the business - means that they should be more involved in setting corporate strategy. "Such differences are a concern, and if left unresolved, could lead to the regulatory teams carrying out projects that are not part of the board's strategy, thus wasting valuable time and money," continues Thomas. "If the two groups are not fully in tune, the sector could also see confusing messages being sent to the regulators."
There is, however, general agreement amongst the respondents on what it takes to be an effective regulatory function, and a high degree of confidence in the individuals working in this part of the business. This function is however lacking effective ways to measure its performance, which can limit its ability to demonstrate its true worth.
Additional key findings of the survey include:
* 42% of the regulatory function felt that the board was 'fully informed and aware' about regulatory matters, compared to just 23% of board respondents.

* 45% of regulatory professionals believe that their current position should lead to a job in another part of the organisation and only one in five senior managers shared this view.

* 56% of respondents in the regulatory function see themselves as business partners to the board in comparison to one in seven senior managers.
Convergence of telecommunications and media, along with deregulation, is blurring traditional regulatory boundaries and putting increasing pressure to improve communications, learn from other industries and build a strong regulatory team.
"This situation is even more complex and pressing for those companies operating in multiple regulatory environments," says Yunus Suleman, chairman of KPMG SA. "Subsequently, companies will increasingly need to develop proactive regulatory functions that recognise commercial issues and can communicate with the board."
The research shows that the regulatory function has some way to go before it can claim a permanent place at the boardroom table. To achieve this, it should seek to improve the communications and relationship with its board and the rest of the organisation, and manage and develop its talent more effectively to create attractive career options. The good news is that both senior management and those in the regulatory function are receptive to change and open to the idea of learning regulatory lessons and preferred practice internationally and from other sectors.
"The survey shows that many communications companies now lack the regulatory capability to cope with a truly converged world but this could be acknowledgement of the need for a truly proactive approach to regulation to help ensure that there is a true regulatory strategy agreed at board level," concludes Suleman.


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