This article was first published in the May 2017 Ireland edition of Accounting and Business magazine.

Attitudes to corporate defence are changing in the 21st century. In November 2016, Arnold Schilder, chairman of the International Auditing and Assurance Standards Board, delivered a keynote speech at an ACCA conference in Brussels entitled ‘The Future of Audit’. In it, he stated that ‘understanding the business of the auditee, its corporate defence and value preservation is a cornerstone of a robust audit’. 

Such statements reinforce an emerging view that, in an era of diminishing trust in corporate ethics, there is an onus on each organisation to be able to demonstrate to their stakeholder groups that they are taking all reasonable steps to prevent unnecessary losses, and to safeguard stakeholder value. 

Typically an organisation’s business strategy should be concerned with how it intends to create, deliver and preserve value in the short, medium and long term. In the business world, value creation is generally concerned with bringing the dollar in through the front door (offence), while value preservation is concerned with preventing the dollar from leaving through the back door (defence). The value preservation imperative refers to an organisation’s obligation to its stakeholders to take adequate steps to help preserve value, and defend against value erosion, reduction or destruction. 

Unfortunately, in far too many organisations, business strategy is primarily concerned with short-term value creation. Its longer-term value preservation efforts are often neglected and considered only as an afterthought. This disconnect typically begins at a strategic level in the boardroom and cascades down through the organisation to tactical and operational levels. 

The umbrella term ‘corporate defence’ is often used to describe an organisation’s programme for self-defence, including the measures taken to defend against hazards that could potentially damage or destroy stakeholder value. Corporate defence is synonymous with value preservation and the delivery of long-term stakeholder value. Ideally, an organisation’s defence strategy should be in alignment with, and an essential part of, its business strategy in order to optimise its value contribution. 

Every organisation will have some form of corporate defence programme in place, whether by accident or design. This can typically range from a formal structured programme, to an informal, ad-hoc operation. Such approaches are the subject of increasing levels of stakeholder scrutiny.   

A comprehensive approach to corporate defence involves coordinating and integrating interrelated disciplines, including the management of the organisation’s corporate defence components (see box). Each one of these has a critical role to play. Effective defence requires an appreciation of the interaction, interconnections and interdependencies that exist between these different activities.

In a complex corporate ecosystem, these complementary components will continuously affect one another. In fact, the symbiotic nature of their relationships means that each contributes to, and receives from, each of the other components. Collective management is required here, as recent developments in these disciplines have caused the boundaries between activities to become blurred, so that it can be difficult to determine where one component ends and another begins. 

A robust corporate defence programme requires the integration and alignment of each of these critical components, as well as a range of different perspectives to deal with potential hazards (ie risks, threats and vulnerabilities). For example, an issue viewed through a governance-centric lens will appear in a different light from when it is viewed through a risk-centric lens. Similarly, a compliance-centric perspective will differ from a resilience-centric perspective, and so on and so forth. By incorporating different perspectives, an organisation can develop a more holistic view of a particular issue, and be on its guard for potential blindspots.

The accountant’s role 

Historically, accountants usually occupied roles in the financial control function (second line of defence) and/or the internal audit function (third line of defence), but in the 21st century it is becoming more and more common to find accountants in other, diverse roles across the enterprise. Increasingly, individuals with accountancy backgrounds now work at strategic, tactical and operational levels.

This offers accountants the opportunity to have a major influence on future developments in the corporate defence space and so help to ensure that an organisation has appropriate measures in place to meet the challenge. Some may already be at the forefront of such activity at an enterprise-wide level, and are therefore well positioned to play a leading role in the development of an organisation’s corporate defence. 

In fact, it is increasingly common to find accountants specifically focused on activities such as corporate governance, compliance and risk management. Finance people also have important roles to play in relation to value preservation and the protection of present and future profitability, while optimising the use of resources and maximising return on existing investment. 

Regardless of your position in your organisation, there is one question that is relevant to all accountants: is there a formal corporate defence programme in place, and if so, what percentage of the organisation’s budget is allocated to this? For some, the answer to this may prove to be a source of genuine concern.

Sean Lyons is the author of Corporate Defense and the Value Preservation Imperative: Bulletproof Your Corporate Defense Program (2016), published by CRC Press