What firms fear: Aggressive regulation stifles Asian businesses’ growth

Singapore is the region’s most severe regulator.

More and more companies in the Asia Pacific region are becoming concerned about managing reputational risks. But too much fear could stifle growth in the long run, a recent survey warns.

According to a report by the Economic Intelligence Unit and international law firm Clifford Chance, 80% of Asia Pacific board members view potential damage to their company's reputation to be more important over the next two years.

The survey also revealed 43% of respondents cited a significant increase in boards' time spent on risk management, while 55% reported a significant increase in financial investment.

“Regulatory enforcement is on the rise with substantial fines being levied against major financial institutions as well as high-profile investigations into possible corrupt business behaviour. This can create a culture of fear at boardroom level, inhibiting growth because boards are afraid to take on opportunities that may be deemed risky. Instead of shying away from opportunities, boards need to look at embedding risk management through the implementation of systems and controls but more importantly, creating a compliant culture throughout the organisation. It is culture that drives behaviour,” said Matthew Newick, Clifford Chance's Asia Pacific Head of Litigation and Dispute Resolution.

Here’s more from Clifford Chance:

Whilst the aims of the Asia Pacific enforcement authorities are broadly the same, the ways in which they set about achieving them reveal their different powers and how pragmatic or proactive they have been in applying these powers. Equally important is the degree of political involvement in enforcement, which may influence, and at times limit, enforcement authorities’ actions.

The frequency and severity of enforcement actions across the Asia Pacific region vary widely. Regulatory action is at its highest in Hong Kong and Singapore. Korea, Australia and Japan follow relatively closely behind, although their actions tend to result in the imposition of lower penalties.

The survey results indicate that boards are still focused on the traditional areas of risk, with financial risk (78%), reputational risk (60%) and legal/regulatory risk (55%) selected as the top three priorities for risk management. 

New and less prominent areas of risk such as product liability, shareholder activism, cyber security, corruption, health and safety and environmental risk remain a low priority, which is somewhat surprising, given the high value placed on reputation by the respondents. An incident in any one of these areas could result in substantial damage to a firm's reputation.