As we all reflect on the anniversary of the great financial collapse of 2008, let me say I'm immediately struck by how much regulatory activity has transpired since the demise of Bear Stearns and Lehman Brothers and the restructuring of other "too big to fail" financial behemoths. In quick response to the financial woes of U.S. institutions, the federal government and banking industry scrambled to enact TARP (Troubled Asset Relief Program) legislation. While the fundamental theme of TARP - bailing out institutions in peril - is familiar, a multitude of attached governance, risk and compliance responsibilities for financial companies now requires an agile and innovative response from corporate business intelligence and financial IT systems. Within the confines of TARP exists a complex web of politically sensitive business logic.
It is vital to realize that TARP calls for a greater amount of scrutiny, transparency and senior-level accountability than what was required by the Sarbanes-Oxley framework. This is especially true when it comes to issues of executive remuneration and bonuses. For corporate boards that have become de facto custodians for TARP money, fundamentally restructuring their executive compensation strategies to align sensibly with the U.S. Treasury's TARP guidelines has been an ongoing struggle. Under TARP, a wide array of provisions addresses everything from "equity as salary" payments to grandfather clauses that maintain employment contracts that were legally consummated before the TARP bailouts. The very employees subject to restrictions on bonus payments vary by each corporation.
More specifically, bonus restrictions depend solely on the amount of TARP monies that have been received by a company. In general terms, the CEO and the next 20 most highly paid employees will fall under the most restrictive of TARP statutes. Their financial destiny may be altered by various claw-back provisions, which can nullify bonus payments if it is found that flawed or inaccurate performance metrics were used to determine and calculate an employee's bonus. Other restrictive measures include golden parachute and severance limitations that stay in force for the duration of the company's TARP dependency. Businesses that have garnered sums from TARP exceeding $25 million are required to form a compensation committee composed of directors that are not current board members. The committee will be responsible for closely documenting the firm's current landscape of executive compensation and reporting a detailed picture to senior risk officers at least once every six months.
While compensation issues are the most visible compliance component of TARP, a host of additional tenets warrant extensive compliance tracking. One such decree revolves around the elimination of excessive expenses, i.e., luxury expenses incurred primarily by executive managers. These may include company parties and "business" excursions, private jetting and ostentatious globetrotting, renovations to office space (like a $1,405 trash can) and other questionable outlays of corporate largesse that in the past were called "perks." Going forward, TARP-reliant companies must establish policies that directly confront such expenditures and set up approval/prohibition processes to track adherence to these policies. All policies must be visible to the public eye (i.e., posted on the company's Web site); furthermore, any violations of policy will have to be promptly reported.
Internal TARP-facing analysis should be able to expose potential conflicts of interest or other behaviors that may pose risk to the firm's reputation, recent compliance mandates as well as overall financial well-being. TARP-driven BI adds value by discouraging behavior that focuses on short-term results at the expense of value creation and innovation over a longer time horizon. With the advent of TARP, financial BI must evolve further, to become an agile and holistic craft with large dependencies on enterprise-wide GRC practices.
Businesses that are beneficiaries of TARP funds rely heavily on their corporate knowledge factories and performance management applications, often having to merge the processes and data of these systems with those from human resources in order to achieve the required transparency into executive compensation and expenses. While the challenge of timely financial data integration looms large for IT departments, a parallel burden of creating a new standard of leading indicators (and key performance indicators) of risk, compliance and specialized areas of performance has been foisted on senior directors and governing boards. The days of relying on a company's share price as the primary indicator of a CEO's performance are long gone; tougher questions will now be asked of business leaders. After all, companies that fall under the aegis of TARP are virtual stewards of U.S. taxpayer monies. This time, the entire population of the U.S. is a shareholder. For C-level businessmen to achieve success with new compliance and governance requirements and continue to annually certify corporate financial balance sheets with confidence, financial BI must play a prominent supporting role. If they are handled correctly, TARP obligations can serve as a catalyst for financial organizations to repair their fragile public image and instill a better trust in the broader financial market.
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