In this article a lawyer from the United Arab Emirates has a brave stab at predicting the future of compliance management. In doing so, he looks at the implications of 'Big Data' and the possibility of automating the compliance process even more than today.

"Can I know what every one of 257,000 people is doing? Clearly I can’t!" So said HSBC’s chief executive officer, Stuart Gulliver, at a press conference on 23rd February. Behind this quotation a worrying question arises: have companies become too big to manage? Are they destined to sink under the weight of their own superstructures?

Too big to comply?

The main problems that bedevil compliant management seem to be both numerical and legal. How can a top executive make sure that 257,000 people are doing the right thing? He must ensure that they are focusing on the same objective, sharing the same culture and - last but not least - abiding by the same rules and regulations. Is this possible? Have our super-corporations become too big to manage and to be deemed compliant?

Legal and organizational issues

At first sight the matter appears to be purely legal, as we are mainly grappling with problems to do with compliance and internal corporate governance. More specifically, it seems that we are witnessing a neglectful delegation of power by which board members have not been diligent enough when selecting, instructing and supervising people below them, who themselves have to take decisions. Furthermore, Gulliver seems to suggest that compliance officers are not able to spot illegitimate transactions and bring them to the attention of top managers. Now, if the issue was purely legal and organizational, firms around the world would not make such a fuss about their size and the problem would be an easy one to solve. In fact, top managers are blaming others and using them as scapegoats because they are failing to understand why their organizations are at risk of falling apart.

Not business as usual!

Today we live in a world where abundance, rather than scarcity, is the norm and where privacy does not apply any longer and 'transparency' (i.e. governments shielding their own activities illegally from the public while spying illegally on everyone else) rules instead. In this new environment, an abundance of rules and regulations is the “new normal” and the tsunami of data derived from it is the new reality. More rules imply more data to be screened by financial organizations. For lawyers such as myself, data is nothing else but facts and the deluge of facts that has already begun will challenge and subvert our daily professional lives. This is because - amongst other things - we shall have to segregate what is relevant from what is not.

Welcome to the information age, where it is not "business as usual”!
 
Massive data  

The case of HSBC shows us that, in this age of information, the data that every company owns is a valuable asset that it can transform into gold if it manages and uses it properly. It can also, however, be poisonous when poorly managed, ignored or hidden. Managers and lawyers will have to develop new technology and new approaches to help them deal with 'massive data.' To be successful, companies must not only store data in warehouses but also, in the words of Dr Walid el Abed, "consider data as the motor force of their corporate value and treat [it] like an enterprise asset."

Identifying the best strategies for survival

Stuart Gulliver of HSBC has claimed that "knowing what every employee is doing is not the leader’s responsibility." I take the opposite view to this assertion: it is up to those in charge to prepare their staff for the next information era instead of vegetating in the last industrial one. Managers will have to embrace technologies that make sense and make a difference in this radically new reality. As tech-observers and futurists are predicting, our rank and pay level in organizations will depend largely on how good we are at embracing the new technological era and on how well we work with machines. [See Kevin Kelly, Better than human: why robots will and must take our jobs, Wired, 24th December 2012.]

Working with the machines

This prediction implies that stakeholders will soon expect their leaders and legal experts to use technologies that can ensure that "instructions are carried out with high fidelity" and that rules and regulations are strictly followed throughout the so-called 'value chain' or, at least, that any divergence with rules is spotted before it is too late.

Oversight by means of digital technology will make 'modern' compliance managers and 'contemporary' executives more valuable than their peers who still have to diffuse their control through long chains of subordinates. Recently, regulators have raised serious questions about the sustainability of financial 'super-structures'.

* Leonardo Castellana can be reached at castellana@m-hq.com or on +971 (0) 50 487 1741.