The Importance of Corporate Governance in Operations

August 24, 2011

In mid-July, Moody’s published a report raising a red flag about the governance of some Chinese companies, causing prices in the stock and debt markets in Hong Kong to fall.  The Securities and Futures Commission, Hong Kong’s market regulator, was so concerned by the market impact of the report that it is launching an investigation into the validity of Moody’s findings based on its methodology for issuing ‘red flag’ reports.  Click here to see a news story on the topic.

Although most journalists are focusing on this story in terms of the relevance and power of ratings agencies, we were stuck by a different takeaway – that both rating agencies and regulators are deeply concerned about corporate governance, and that corporate governance problems can have a dramatic impact on the valuation and perception of a business.

We believe that good corporate governance goes hand-in-hand with operational control.  Clients and prospects, across all regions, are struggling to keep abreast of the ever-changing regulatory environment in which investment managers operate.  We often talk about performance attribution and reporting as means to achieve transparency with investments, but it’s equally important for firms to have operational transparency.  Solutions such as PORTIA automate workflow and provide strong operational checks and balances.

PORTIA supports an incredibly broad range of asset types and can be configured to comply with industry standards, including International Financial Reporting Standards (IFRS) and Statutory Accounting Standards.  It also provides complete control to comply with authorization and authentication regulations needed for Sarbanes-Oxley and ISO 17799.  Ensuring operational control and transparency is the best way to build confidence with both rating agencies and investors, avoiding the pitfalls recently experienced in Hong Kong.

How important is operational control for your firm?  Are you observing the increasing role of ratings agencies and regulators in overseeing operations?

-Matt Baldwin, Asia Managing Director

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