Trésorier/Treasurer magazine - N°83 — Oct/Nov/Dec 2013 - (Page 85)

Financial Risk Observatory Independency, a definition or a reality? Are covenants and rules designed by people that really foresee the consequences of some new rulings or requirements? To their defence, it is not an easy task. The pressure for more regulation is undeniable and we are dealing with complex systems. Yes, the financial economics’ logic is not so complex, but once you open the hood, a myriad of details drown us immediately into complexity. That legacy makes some reforms look more like “patchworking”, which participates to complexity creating an endogenous problem. The financial crisis told us that governance is key and complexity doesn’t make good governance easier. The risk is to get normative and to bypass the extensive research and expert knowledge that some already have. Look at the fairness of “fair value”. Linking risk exposure, profit, (automatic) default triggers, bonuses,…to market prices only comes with some issues. It is a pity because many could have told that beforehand. We must remain careful about the abuse of presumed bijective rules. It is not because a market price can be a fair value that fair values are always market prices. It is a provocative start, but we should be less shy in defending our own expertise letting others tell us what we know already. For example, it has been evidenced in banking that in several cases, the treasurer was too close to the trading room. Simplifying, a normal treasurer tends to think in cash flow terms, while a normal banker tends to translate that into products. This is quite natural since the front office driving the activity of the bank refers always to products. But the problem resided in the fact that this « front-office » culture conditioned all other activities in the bank and at some point, some managers forgot that, behind the front desk, the bank is still a corporate firm like any other. The corporate culture has always shaped the way institutions work. And that is the key challenge of good governance. On the one hand, independency is crucial. But, on the other hand, by willing to remain officially “independent”, we are refusing to feed our reflexion with the expertise of those for whom some elements are “déjà vu” stories. There is nothing more frustrating than to witness cases where the cause is probably a 101 issue for some expert who could have told that easily. Anyhow, it is not because it is written on the paper that we must feel more confident about true independence. There are behaviours that will be innately happening, it’s just human nature. Understanding them to try to create the good incentives will definitely be much better than trying to “square the circle” with the temptation to bypass it. A good system is one where we will fight to develop the critical eye of managers and board members and to take effective decisions behind. We know that the incentive to cheat increases when the potential gain by being the only one cheating increases. Asymmetries create loopholes, starting by the knowledge. Examples are plethora. Because of the complexity of your environment, the auditor might need to refer to the consultant to make sure to grasp all the ins & outs. That’s the reality behind the debate on the separation of tasks. Adding more complexity clearly doesn’t alleviate the issue. LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE — N°83 — OCT regulation, habits and desire to rule… / NOV / DEC 2013 by Hugues Pirotte 85

Table des matières de la publication Trésorier/Treasurer magazine - N°83 — Oct/Nov/Dec 2013

Couverture
SOMMAIRE
EDITORIAL
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW David White - TriOptima
FOCUS
FORUM
CORPORATE FINANCE
15 MINUTES WITH Capita Asset Services - Luxembourg
NEWS
THE FINANCIAL RISK OBSERVATORY

Trésorier/Treasurer magazine - N°83 — Oct/Nov/Dec 2013