Governance – balancing local needs with global consistency.

In the ever-evolving landscape of governance, a fundamental tension persists between the pursuit of global consistency and the preservation of local autonomy. Striking the right balance is a delicate and nuanced challenge, as it involves navigating the complex interplay of cultural, economic, and political factors.

In this Q&A, I sat down with Katy Matvey, most recently MD and Regional COO APAC at Wells Fargo, to discuss the nuances of this dichotomy, leveraging her own experience and exploring the advantages and drawbacks of both global standardisation and local autonomy, especially in the area of governance and controls.

The key question becomes is how can we strike the right balance between global consistency and local autonomy in governance? Is it possible to create a framework that addresses local regulatory requirements while benefiting from the efficiency and effectiveness of global processes?

Navigating the nexus of global consistency:

Q: To start, let's explore the challenges of balancing global consistency and local autonomy in legal entity governance. What issues have you faced, and how did you address them?

A: The primary challenge lies in conveying to headquarters the criticality of incorporating local regulatory compliance within global processes. Articulating the necessity for addressing added requirements and integrating them into the global process or controls can be challenging, particularly when the reaction from headquarters is often to manage it at the local level. However, when the process is inherently global, utilising global systems or originating outside the region, addressing it solely at the local level becomes impractical. This dynamic introduces significant risks for local governance, the local legal entity, and its officers who bear the regulatory burden. This challenge is notably pronounced in locations with minimal presence or revenue relative to the overall company, where the weight given to local requirements tends to be overshadowed by those of more substantial markets.

Striking the balance in skills development:

Q: In the pursuit of developing skills in legal entity governance, how do you balance global competencies and cultivate essential local expertise?

A: The crux lies in creating a team that marries the global viewpoint from headquarters with a profound comprehension of local intricacies. Diversity in leadership is paramount, ensuring a seamless fusion of the global vision and acute awareness of regional requirements, thereby optimising both efficiency and efficacy. In my view, the pivotal element is a diverse local leadership and team, encompassing perspectives from the "head office" and individuals with an in-depth understanding of local nuances. It's crucial for the team to not only possess and heed local expertise but also comprehend how to seamlessly integrate local governance into global policies and processes, preventing them from evolving into standalone and less efficient procedures.

Drawing from my experience at the headquarters of two major US banks and subsequently working in their APAC offices, this approach has proven invaluable. It enabled me to understand the needs of local entities and advocate on their behalf within broader governance structures at the head office. Moreover, it allowed me to help those primarily accustomed to regional teams understand the challenges of balancing diverse locations and requirements while developing global processes.

Adapting governance structures to diverse landscapes:

Q: Diverse legal, cultural, and regulatory landscapes can pose challenges. What strategies do you recommend for adapting governance structures to these complexities?

A: Achieving a comprehensive understanding of regional legal and regulatory landscapes is imperative. It involves meticulous efforts to discern unique requirements from those already covered in global policies. Clear documentation that delineates responsibilities within and outside entities is not only essential for regulatory compliance but also for ensuring efficient operational management.

In the context of legal and regulatory landscapes, a profound understanding of requirements is crucial. It's important to determine whether these requirements differ from existing global policies or are essentially the same but originated from a different country or regulator. Frequently, local policies are developed in response to newly issued requirements, even when the global policy already encompasses them. Unfortunately, local teams often try to address these requirements but encounter challenges because the processes and controls are global and don't align with local needs. In such cases, addressing the issue at the global level becomes essential, involving tapping into governance and committee structures beyond the specific location or region.

An added challenge arises from the expectation of genuine local governance, emphasizing that it is inadequate merely to assign responsibilities to individuals in other locations. Clear understanding and documentation of responsibilities within the entity, as well as outsourcing processes to other entities within the same company, are crucial. Many at the head office may overlook this perspective, assuming they are solely running global processes. However, this approach is insufficient, as local regulators often expect clear oversight of processes performed by other entities, with local management bearing the responsibility for such oversight.

Transparency and communication as pillars:

Q: Communication and transparency are vital. How do you manage expectations and secure buy-in from diverse stakeholders in this complex environment?

A: Communication serves as the linchpin holding the global entity together, acting as the adhesive that ensures cohesion. It is imperative to establish unequivocal decision-making authorities at the local, regional, and global levels. Effective communication, both upwards and downwards, not only aligns with strategic priorities but also averts the sense of detachment in regional offices. In the context of a global franchise, success hinges on robust communication and transparency. Clarity in decision-making authority across local, regional, and global levels is paramount, tailored to meet local governance expectations and practical considerations such as speed, proximity, and local empowerment. A regional level can contribute to achieving balance, streamlining decision-making processes, and ensuring consistency across a region in addressing local needs. Often, the responsibility of communication falls on local or regional teams to convey updates, risks, and issues, emphasizing the need for effective information flow. Simultaneously, it is critical for the head office to engage in proactive communication, disseminating information on strategic priorities and company direction. Failing this, there is a tangible risk of local and regional offices feeling detached from the overall company and its overarching priorities.

Global opportunities and local impact: A career perspective:

Q: Reflecting on your career, could you share instances where you seized global opportunities and made a meaningful local impact in addressing regional governance challenges?

A: Transitioning between headquarters and regional offices has proven pivotal in narrowing the understanding gap. Fortuitously, my career has allowed me to work in both head office and regional locations. This duality has not only facilitated an enhanced comprehension at headquarters of the challenges faced by local legal entities and regional offices but has also enabled the infusion of headquarters experience into local operations. A concrete illustration of this symbiotic dynamic is my involvement in standardising global KYC processes and setting up a consistent organisational structure for regional teams. Operating within a highly regulated landscape across jurisdictions, the objective was to create a more standardised global process. This not only ensured a uniform customer experience across global legal entities but also addresses regulatory requirements efficiently. The overarching goal has consistently been to harmonise global aims with local nuances, embodying a balanced and cohesive approach to governance.

The Future landscape of legal entity governance:

Q: To conclude, what trends do you foresee shaping the future of legal entity governance, particularly in the context of the global-local dichotomy?

A: The future lies in a delicate balancing act, with companies striving for global efficiency while local regulators demand accountability. In the ongoing push and pull between these two goals, global expansion in companies, particularly in financial services, is driven by the dual benefits of increased efficiency and strengthened controls and data flows. Simultaneously, local regulators advocate for the appointment of local accountable officers, emphasizing the necessity for transparent articulation of processes, risk management, and the un-outsourced handling of risks.

This dynamic necessitates a continuous improvement in documentation and transparency practices to achieve operational efficiencies while satisfying local governance requirements. A robust control management system, intricately tied to policy and regulatory requirements, becomes indispensable. This system serves as the linchpin, meticulously documenting how local requirements are addressed and identifying the individuals responsible for performing the controls. It's through this careful synergy that companies can navigate the complexities of a global-local landscape, ensuring compliance, efficiency, and accountability in equal measure.

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