Managing Risk For Your Enterprise: KPMG's Harikrishnan Janakiraman Explains How
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"Family businesses and SMEs are one of our key focus sectors for the firm as a whole, and having been here [in the region] for the last 10-13 years, I’ve dealt with a lot of them. There’s now a growing impetus from financial institutions and the government to try to encourage entrepreneurs and startups. With that kind of impetus being there, a lot of them need to be coached- a lot of them need to be hand-held through the process of trying to set up a proper organization with the right kind of set-up.” Harikrishnan Janakiraman, Director, KPMG in the Lower Gulf, has over 11 years of experience in providing enterprise risk management (ERM) consulting and assurance services, and he believes that while your business may not have reached the multinational level yet, it pays to put in place procedures early on- thinking like a big corporation from the get-go can ensure that once you become one you won’t have to make huge changes in processes.
Janakiraman, as the director in-charge for numerous ERM projects, risk assessments, and risk based internal audit engagements for various clients including asset management firms, exchanges, insurance companies, banks, and other types of financial institutions, has three tips for you to keep in mind when setting up your business to manage risk, and ensure the success of your enterprise:
1. Seek out an independent advisor for your business.
“It’s important for any startup to have the right kind of advisor with them, to take them through the journey of a setup. Because the majority of entrepreneurs and new setups have a great idea, which is what they want to capitalize on, and that idea will probably be backed up by decent financial people- it could be banks, it could be big investors. Now, when these two stakeholders are there, they only talk business or numbers- now, that’s why the first tip for any startup is to make sure that they have another partner who takes care of the more important parts of how the business is going to sustain in the long run. And those kind of advisors should be people like KPMG, who can then hold their hands through all aspects of setting up a business, and running a business in a profitable manner.”
2. Define a corporate governance structure for your enterprise.
“Once you have the right advisor, we believe very strongly that you have to try to set the right kind of tone for the kind of organization that you want to build. So, while you will have your legal documents like articles and everything done, and you’ll have the money coming in through the banks and you’ll have a set of financial statements, that’s a good starting point, but you need to complement that with the right kind of governance setup. Now that’s a tricky part, because you want to be clear on how much you want to spend on it that would make sense, and my advice would be to [people] in those situations is to make sure that do not think about this as a cost right now, because this is the investment you put in your company to be able to ensure that you are able to induce investor confidence in your product or setup. What I mean by governance setup is that make sure you have, first of all, established a board. The law doesn’t ask you to have a board, but the good thing of having a board and some independent people apart from you is for somebody to independently challenge you for any major decisions you are going to take. They are not here to stop you, but they are trying to be a sounding board for you, [thereby] making sure that you don’t make any major mistakes. And hence it’s important for you to have a board.”
3. Set up a code of ethics for your company.
“Set the tone at the top when it comes to ethical behavior for your organization. You need to say that this is the bare minimum of principles that you will not compromise for your setup, even if it is a startup; no matter what the market conditions are. You need to have some kind of risk set-up, such as whistle blowing, a code of conduct, etc.- you need to have clear rules that say that you are not going to win business by bribing. That’s the ethics and tone at the top I am talking about- that would be the third important tip that I would definitely advise SMEs to do. In my personal view, this should be a founding thing. It should start as soon as you start business- it is something that I would recommend companies to do along with their legal documents when they are incorporating the company. The problem is is that [most] people think about this [only] when there’s an incident. Now, that’s like you’re being more reactive: you’re not being proactive, you’re not being preventive. So it needs to be thought of as an establishment cost- it’s an investment cost, it’s never going to be a sunk cost.”