The digital transformation has fundamentally changed the landscape of Governance, Risk, and Compliance (GRC). Companies face new challenges arising from technological advancements, globalization, and changing regulatory requirements. In this whitepaper, we discuss how the GRC market has evolved and the role of innovative solutions like Zazoon in helping businesses navigate modern GRC challenges.

1. The Evolution of the GRC Market

1.1. Growing regulatory requirements

In recent years, numerous countries and industries have tightened their regulatory requirements to ensure transparency, integrity, and stability of businesses and financial markets. This development has led companies to continuously adapt and update their GRC strategies.

1.2. Globalization and interconnectedness

The globalization and interconnectedness of businesses lead to increased complexity in the GRC field. Companies must be able to understand and comply with country- and industry-specific regulations and guidelines while efficiently and effectively managing their international business activities.

1.3. Technological advancements

The rapid progress of technologies such as cloud computing, artificial intelligence (AI), and big data has created new opportunities and challenges in the GRC field. Companies must adapt and learn to effectively use these technologies to optimize their GRC processes and meet the demands of an ever-evolving digital landscape.

1.4. Data protection and cybersecurity

The increasing digitization of business processes and the growing importance of data have made data protection and cybersecurity central topics in the GRC field. Companies must ensure the integrity of their systems and the security of their customer data while simultaneously complying with legal data protection requirements.

2. The Role of Innovative GRC Solutions

2.1. Automation and efficiency

Innovative GRC solutions, like Zazoon, enable companies to efficiently manage their compliance, risk, and control requirements by reducing manual tasks and unstructured workflows. Through automation and centralized data management, companies can save time and resources and minimize human error.

2.2. Integration and flexibility

Modern GRC solutions provide an integrated platform that allows for effective management of various aspects of GRC, such as risk management, internal control systems, policy management, data protection, process management, supplier management, and ESG. A flexible and adaptable GRC solution supports companies in adapting to changing regulatory requirements and business environments without affecting their existing processes and systems.

2.3. Data analysis and decision-making

Innovative GRC solutions enable companies to effectively process, analyze, and derive valuable insights from large volumes of GRC-related data. By utilizing advanced data analysis techniques and visualization tools, companies can make informed decisions and optimize their risk management and compliance strategies.

2.4. Scalability and cloud computing

Modern GRC solutions offer scalable infrastructures and cloud computing options, enabling companies to effectively manage their GRC processes and adapt to growing demands. Cloud-based GRC solutions provide flexibility and scalability while meeting security and data protection requirements.

The digital transformation has fundamentally changed the GRC landscape and created new challenges for businesses. To be successful in this dynamic environment, companies must utilize innovative GRC solutions like Zazoon to help them efficiently and effectively manage their compliance, risk, and control requirements. With the right GRC solution, companies can optimize their processes, make informed decisions, and successfully adapt to constantly changing regulatory requirements and market conditions.

Your path to success

We invite you to learn more about the benefits of Zazoon and discover how our GRC solution can help you master the challenges of digital transformation. Contact us today to learn more and schedule a personal demo appointment. Let’s work together to shape your path to GRC success!

Environmental consciousness has become a major non-financial factor for businesses over the past few decades. The term ‘ESG’ entailing environmental, social, and governance factors, is employed to weigh how far companies have progressed and will be progressing in the future on all these determinants of their sustainability. The score of their sustainability does play a vital role for the investors in the process of their investment screening.

ESG relevancy for Business

While the other two determinants, social and governance of companies’ sustainability are in no way to be assumed less important, the environment is of the essence. Environmental factor has been able to gain more traction in the business world due to the mass awareness of climate change and global warming. Environmental factors do not affect only businesses but also our society, country as well as the world at large. The number of business industries that are being affected directly or indirectly by the consequences of climate change, is rising briskly. Such rapid environmental changes have been worrying many established businesses in the market along with the small ones. It has been found in a study that the U.S. alone could lose USD 520 billion across 22 sectors due to global temperature rise.

The concern as regards climate change and global warming has become a key factor for investors. In less than two decades, ever since the United Nations Environment Programme (UNEP) published a report ‘A Legal Framework for the Integration of Environmental, Social and Governance Issues into Institutional Investment’, in the year of 2005, ESG investing which is known as socially responsible investing has evolved into a USD 35 trillion industry. According to the money managers who oversee one-third of the total U.S. assets under their management, assets managed in portfolios labeled ‘ESG’ are expected to reach USD 53 trillion by 2025. (Bloomberg Intelligence, ESG assets may hit USD 53 trillion by 2025, a third of global AUM, published on: 23 February 2021)

The above figures manifestly show the growing desire of investors to create a positive impact on society, the country, and the world at large through their investments. These figures also reveal an exponential sense of ethics and fiduciary responsibility amongst the investors.

Such inclination of the investors obliges businesses to score well in ESG rating. A systematic and long-term plan can help them score well. It will also help them to see where they stand in the market in comparison with their peers as regards the sustainability of their businesses.

The ‘Green Blueprint’

Businesses may opt for a ‘Green Blueprint’ that will be premised upon ‘zero tolerance’ against any business activity that is detrimental to our environment, and will entail the below:

1. compliance with the national and international laws and regulations relating to environmental issues (different measures have been taken at the national, regional, and international level to tackle the climate crisis, such as the European Parliament has recently voted to set a 2035 deadline for zero-emissions cars and vans which is being seen by many as a huge step forward for climate action, air quality and the affordability of electric vehicles. Green group Transport & Environment called on EU environment ministers to confirm the effective end date for sales of new combustion engines when they meet on 28 June 2022. (Transport & Environment, EU Parliament backs 2035 end date for combustion engine cars, published on 8 June 2022));
2. creating consumer awareness of climate change and global warming which would drag the consumers towards green products (McKinsey research shows that more than 70 percent of customers would pay an additional 5 percent for a green product if they were satisfied that it met the same standards as a non-green alternative);
3. low-carbon business strategy;
4. less dependency on the natural resources than its peers;
5. having apt financial arrangements to deal with rising costs that ensue from climate change.

The proposed ‘Green Blueprint’ can help businesses become more sustainable and be well ahead of their peers in the market.

Closing thoughts

In an age where environmental consciousness has become a paramount concern, the significance of ESG (Environmental, Social, and Governance) factors cannot be overstated. While social and governance elements hold their own importance, the environment takes center stage due to escalating awareness of climate change and its global implications. The rapid and widespread impacts of environmental shifts on businesses and society have prompted a surge of concern among investors. This has driven the growth of ESG investing, with assets under management reaching staggering figures, underscoring a growing ethical responsibility among investors to make a positive societal impact.

This growing investor inclination compels businesses to prioritize high ESG scores, necessitating long-term strategies aligned with sustainability. A ‘Green Blueprint’ emerges as a potential solution, emphasizing strict compliance with environmental laws, fostering consumer awareness, adopting low-carbon strategies, resource efficiency, and prudent financial planning for climate-related costs. Embracing such a blueprint can empower businesses to lead in sustainability and outpace competitors, forging a path towards a more environmentally conscious and resilient future.

The whitepaper emphasizes the significance of the board of directors and its composition in corporate governance. Whilst the concept of corporate governance varies across jurisdictions, there is a consensus that the board of directors plays a crucial role in creating value for the company. The organizational structure and legal framework of corporate governance differ between countries, with Switzerland allowing both one-tier and two-tier structures.

Corporate Governance

While it is next to impossible to define ‘corporate governance’ from a universal point of view, there is, however, complete unanimity on the fact that the composition of the board of directors and its role are the key elements of corporate governance. As per 49.7 percent of the respondents participated in a survey held in Switzerland in the year 2016, the board of directors, especially the process of its composition, has a colossal impact on the ultimate value creation of the company. The organizational structure (in particular the structure of the board of directors) and legal framework of corporate governance are varied. While one-tier organizational structure (meaning that the tasks of operations and supervision are managed by the same instance) is adopted by the companies in the US, Switzerland opts for a rather flexible slant that leaves companies with the options of one-tier and two-tier organizational structures (where two-tier organizational structure means the tasks of operations and supervision are managed by different instances). Differences as regards the legal framework of corporate governance between countries are also patent. The Swiss legal framework obliges the board of directors to act in the best interest of the company though the directors are elected by the shareholders (Forstmoser, 2005), on the other hand, the legal framework of the US sticks to the notion that the board of directors will only act in the best interest of the company’s shareholders (Millstein, Gregory, Altschuler and Di Guglielmo 2011). The positioning of the board of directors, which is between shareholders and stakeholders of the company, is a crucial juncture. The board, being in its position, has to ensure proper ‘checks and balances’ between the shareholders and stakeholders at all times. Research corroborates that the task of ensuring ‘checks and balances’ does sometimes become very difficult for the board which could either be for an inclination toward the shareholders or the stakeholders, where in either case, such inclination questions the integrity of the board directors. It is therefore imperative to underscore the process through which the board directors are elected and re-elected.

Swiss Code of Obligations

Pursuant to Article 710 of Part Five of the Swiss Code of Obligations, board directors are elected for a stint of three years, unless the articles of association of the company stipulate a tenure that does not exceed six years. What it means is that the stint of the office must not exceed six years. This provision also mentions the possibility of re-election. Since 2014, subject to other additional provisions, each company board director in Switzerland, has to be individually elected on an annual basis. Though this requirement of annual election of the board directors seems to have made the AGM agendas significantly longer, however, research shows that the practice of annual election allows investors to have differing views on each board director which can benefit the company. It has also been found that the shareholders have appreciated the system of annual election. The discrepancy as regards board election approval has increased from 3.4 percentage points in 2010 to 6.5 percentage points in 2016 (Schneider, Wagner, and Wenk 2016). An interesting nexus has also been encountered between total shareholder return and the board election outcomes, when shareholders lost wealth in the previous year, the election yields approval rates one percentage lower on average though the truth of the matter is that elections of the board members are barely contested (Wagner, Bernasconi 2016).

Diversity in the Board of Directors

The current Swiss legal framework does not provide any rules on the composition and diversity of the board of directors. FINMA, however, has made many additional rules that are to be followed by financial sector companies in Switzerland. The idea of setting up these additional rules is to ensure and uphold the independence of the board and committee and the minimum availability of certain skills that the board directors ought to have. Financial sector companies are required to have a risk committee in addition to the audit and composition committee.

The two most striking issues found in the ongoing corporate governance practices in Switzerland are the independence of the board of directors and their availability (Wagner, Bernasconi 2016). These hindrances may put the board on the back foot by making the directors less ambitious and disengaging from the steps that would be beneficial for the company as a whole. Though no requirements in these regards exist for regular companies listed in Switzerland, guidelines entailing minimum requirements along with other important factors, have been set out for financial sector companies by FINMA. One of such minimum requirements is that at least one-third of all board members must be independent, members being independent refer to those a) who are not working or have not worked for at least two years in any function at the company, b) who have not been involved as lead auditor for the company, c) who do not have any substantial business relationship with the company.

Gender Quota

Another concerning factor in the ongoing corporate governance practices in Switzerland is the low participation of female directors in the board. However, the good news is that a new provision (article 734f CO) as regards gender quota has been introduced. The implementation of this provision works on a comply-or-explain basis. Though the new provisions have already taken effect in Switzerland, however, they are still subject to long transition periods. As per this gender quota provision, each gender must be represented on the board of directors at least by 30% starting from 2026 and by 20% in the executive management starting from 2031.

Though the role of the board of directors is intertwined with a lot of other important factors such as board directors’ knowledge about the industry environment, board directors’ homework and research before every meeting that they take part in, expectations of the shareholders and stakeholders from the board, nonetheless, the way the board of directors is composed has the greater impact on what its role would be and how integriously it would be managing and overseeing the operations of the company.