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The business case for IG investments in a post-regulatory world

Continued calls for deregulation may sound like death knell for information governance, but IG investments may prove to be more vital than ever to businesses in 2017 and beyond.

In 2016, humankind witnessed many shifts and unexpected developments. The drumbeats for nationalism from different venues expose an advocacy that is accelerating with renewed momentum: calls to reduce the size and functions of government, notably in areas requiring enforcement of regulations against corporations.

Together, these developments will have a dramatic and adverse impact on the business value for information governance as part of corporate compliance programs. Yet in 2017 and beyond, a new, compelling business case for information governance is poised to be launched for those companies wise enough to recognize the opportunity.

The state of play

For decades, the strongest justification for records management/information governance was the importance of preserving business records required to adhere to public laws and regulations. "Compliance," however, never succeeded at fully justifying the funding required to stand up and maintain an effective program. In nearly every company, budget requests were slashed as companies repeatedly decided to "take the risk" and not properly maintain their records.

The emergence of digital capabilities fueled important shifts in how corporate compliance programs were justified. First, corporate business records in a digital format are more accessible to enforcement investigations. Violations could be detected digitally, through real-time supervision of digital corporate data, such as SEC supervision of market trading. Second, digital records could be more easily shared among governments, enabling cross-border investigations and enforcements in highly regulated (and often complex) industries and markets. Nations no longer acted entirely alone, and the trends moved toward greater international enforcement collaboration. Both of these shifts have made it easier for information governance to justify the spending on their work, as well as related improvements to corporate compliance programs.

Companies that understand the value of engineered, well-designed information governance are the ones that will dominate their markets in the years ahead.

Now, however, things are shifting. The United States provides just one example: Plans being drafted by the controlling political party call for freezing or reducing hiring of government employees (with emphases on enforcement divisions), delete or render ineffective regulations that govern various large industries, and reverse programs that demand strict compliance with public regulations. Any success in achieving these plans will undercut compliance as an IG spending justification, perhaps dramatically.

Those calling for nationalism must, necessarily, also reject the interdependencies that have been achieved in cross-border enforcement. So, simply stated, if government is not going to enforce the rules, why bother investing in the related IG services if the records will never be requested? Why assure the integrity and security of our business records at great expense if the record themselves will never be placed into question?

Offering compliance alone as justification for information governance will simply not be sufficient. But despite these shifts, there is actually a more compelling business case for information governance -- now more than ever.

The new business case

As a business lawyer, I've structured dozens of complex commercial transactions for clients. In every deal, one of the critical issues was the integrity with which a potential transaction partner conducted their affairs. Companies were expected to promise they operated in compliance with applicable laws and to disclose any violations or enforcements. But these elements of every deal relied on a critical, inherent assumption: Governments meaningfully enforced the laws in the related jurisdictions.

If governments did not do so (such as in developing countries with less robust regulatory systems), entirely different levels of due diligence were required for a proposed transaction to succeed. Corporate books and records were more vigorously examined, supporting documentation was reviewed, and field/site inspections were more rigorous.

In the first decade of this century, there was another digital shift: The more rigorous due diligence of corporate business records and information became the starting point. With so many stories emerging of falsified business information and records, no commercial transaction of any meaningful value moved forward without increasingly rigorous validation of the integrity of the records involved. Mere promises that a company was in compliance with laws, and properly disclosed any violations, became meaningless.

Of course, companies without strong results faced another challenge: Whatever the deal, the costs to the other side became greater. If a joint venture was being proposed, more would need to be spent to validate the deal's data. If an acquisition was on the table, more would be needed to integrate the deficient systems into the acquiring company. As a result, the company without meaningful, reliable controls would get less financial outcomes with the added costs being subtracted from their planned revenues.

This evolution is continuing, and that is the business case for information government investment. Companies that spend less on information governance are discovering that being cheap about IG investments impairs a company's agility and wealth creation during commercial transactions. Companies that invest more in information governance achieve new agilities -- due diligence is less expensive in direct costs, deals are valued more for their key qualities rather than discounts for poor IG being taken into account, and the information that fuels the negotiations and the structure of the final deal are more likely to be trusted.

Looking forward

If governments continue to be constrained in regard to regulation enforcement, as well as their ability to audit and validate business information records, companies have a more compelling case. The essence of business is making deals to create wealth. The required fuel for making deals is that the information to be exchanged between the parties can be trusted. That is the essential deliverable from effective IG investments: delivering trust in the digital records that will be evaluated, vetted and ultimately influential in the pricing and structure of the deals themselves.

The absence of strong regulatory governments only strengthens the need for IG investments to enable deals that create wealth. In many respects, the cross-border innovations in how wealth is created, including deals in which digital information is the most substantive asset via data licensing, big data analytics, etc., will succeed or fail based on how well trust is established in the business data. Looking forward, this becomes the driver that matters. After all, when did effective compliance ever create new wealth? What creates wealth is trusted information.

Those companies that understand the value of engineered, well-designed information governance are the ones that will dominate their markets in the years ahead. Those who continue to undercut IG investments and funding in the expectation that lower compliance demands will justify those cuts will find themselves falling behind.

Next Steps

Read more from Jeffrey Ritter on information governance strategy:

GRC records: The essential fuel of big data analytics

Info management rules to offset digital disruption

Monitor, regulate big data systems to create new wealth

This was last published in December 2016

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Will companies reconsider their IG investments if the Trump administration rolls back federal regulatory enforcement efforts across industries?
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Will this development help the society? What is the impact of this in the industry?

- gustavo woltmann
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