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‘Market Intelligence’ - A Governance Marker
A good market intelligence service provider would collate various data sources, use Analytics tools & techniques to process the information and to make sense of it for the benefit of the client.
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Essentially, anything that is a danger to the survival and growth prospects of an organisation can be termed as “enterprise risk”. Hence it requires the full attention of the leadership teams and the Boards, to devote time in proactively discussing the various risk elements and the organisation’s preparedness in case of any such incident(s).
Reputation can be simply expressed as failures or concerns that damage stakeholder confidence, sometimes irrevocably. The stakeholders include investors, regulators, customers, partners, employees, JV partners and larger communities.
Board of directors need the updated relevant information about the marketplace and the competition to help them make informed and timely decisions. But more importantly, the onus is also on the Boards for ensuring that there is nothing wrong with the doings of the companies on whose Boards they serve. In this endeavour, the boards need to determine if the data & information they are presented with, by the management is accurate and timely. In addition, boards need to also have “ear on the ground” about those companies !
To maintain their personal as well as the company reputation, board of directors, especially the independent directors, need markers or early-warning-signs. Forensic intelligence is a post-event tool. Instead there is a definite benefit of using “market intelligence as governance-marker”.
This would allow them to take charge and respond faster during times of crisis. During times of trouble, boards typically only get a short window of time in which they can respond.
Market intelligence is gathering of patches-of informal &/ unstructured information, along with structured information available across various sources in the market. The inputs can range from Competitor Intelligence to Product information, Market Understanding, and Customer perceptions. Getting the right information requires extracting the most useful information from an enormous amount of resources.
A good market intelligence service provider would collate various data sources, use Analytics tools & techniques to process the information and to make sense of it for the benefit of the client. Market Intelligence connects the dots between the raw information available in public domain. It provides the access to unstructured but actionable information, which can be adopted into the corporate governance framework.
“Heard on the street”
Rumour is an inherent aspect of the money markets. Many constituents speculate the outcomes based on certain past or current events. Most of the times, these are considered as the information “let loose” in the market by an influential person or group of such persons. But as the more people start believing “that information”, it starts acquiring traction of being “true”. Its no more a speculative information and this information becomes a significant aspect of market intelligence.
Usually large and influential investors have their own network of sources, who provide regular updates and insights into various companies and promoters they want to track. Insights could mean knowing the background or the intent or the behaviour of the promoters or key executives. Insights don’t necessarily mean price-sensitive inside-information.
One would also be familiar with various “Heard on the Street” columns in various media publications. Institutional investors not only have regular interaction with the management of the companies they invest in, but also use a network of people in the “market” who provide with nuggets of chatter, gossip, rumours etc about those companies.
Influencers. Insights. Actionable info.
In the last few decades, the parameters of the risk have changed. Large lenders, who take informed calls on the PEPs (Politically Exposed Person), consider the risks arising out of such relations as the cost of business. However, when a bank lends money to an enterprise, there are many other (smaller) banks, with small appetite that follow the banks. This cost of business is too high for their survival. PEP Risk is just a small fraction of the whole risk gamut. There are many other risks associated with the financing or investing which the banks or the large investors need to know.
Thanks to RBI’s strict rules around PEPs, banks have clear directions in on-boarding and dealing with PEPs. To onboard and deal with PEP, managers would require the highest level of approval and adequate due diligence. Many such consumers would disguise their PEP-status to avoid questions; Regulator looks for Enhanced Due Diligence (EDD is the result of Market Intelligence), which requires detailed scrutiny, compared to normal accounts during onboarding as well as for each transaction that doesn't seem to be in line with the profile.
So considering the risks associated with PEP, it's always advisable to have a Pre-Approved Board Policy in place in dealing with PEPs and invariably necessary level approvals may be sought before entering into any transactions with them.
Learnings from Banks
The YH Malegam Committee report of 2019 for RBI recommended that all the banks should have a dedicated market intelligence unit (MIU) within Bank (attached to Risk Management Department).
Dedicated MIU will help banks in collecting and processing information which will trigger early warning signals (EWS) in accounts indicating possible fraud or credit risk at the time of end-to-end life cycle of loan account. One of the key features of MIU is to develop technology-based and market-intelligence-based approaches for improving fraud prevention & credit monitoring function within banks. Since regulatorily, this topic is a bank board’s quarterly-agenda, it is those lessons which banks could share with the rest of corporate India boards in dealing with risk management aspects.
Leveraging Risk committees for intelligence
For the top 1000 listed entities (by market capitalisation), it is now compulsory to have a Risk Committee of their Board of directors. Newly introduced Risk Committees can create the framework of getting the market intelligence reports from various different sources. This will be a very welcoming step for all the public companies for better transparency, from the point of view of its shareholders and regulators.
The new rule expects that the risk committee meet at least twice in a financial year, whereas a good practice would be a bimonthly or quarterly overview of the risks that the exercise of market intelligence includes financial, operational, sectoral, information and cyber security, environmental, social and governance (ESG) related risks and impact assessment.
The market intelligence aspect can present risks which are outside the company environment and bringing in the perspective of market intelligence would help the risk committee to discharge its duties in a transparent manner useful for better functioning of the company and mitigation of risks, business contingency plan as well as monitoring and overseeing implementation of the risk management policy.
Sometimes the independent directors, not comfortable with set of the decisions by the promoters &/ key management, may deploy the market intelligence tools to get insights into the transactions. The risk of dealing with the third parties has grown significantly and it has become essential to verify the business partners to avoid unpleasantness later. In light of new international laws, companies bear more responsibility, including liability for the actions of their business partners. The right information will help leaders to define their risk appetite and incorporate risk intelligence into their overall business strategy. Intelligence helps to define the board’s risk oversight role and to foster a risk-intelligent culture. Intelligence also helps boards to benchmark and evaluate the governance process.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.