Why compliance experts are the new key to mega-deals
Last week, Hertz (HTZ) won final approval for its Dollar Thrifty deal from the Federal Trade Commission. China-based Shuanghui International Holdings is trying to gobble up Smithfield Foods (SFD), though the proposed deal is being examined by the U.S. Senate Agricultural Committee. The merger of Office Depot (ODP) and OfficeMax (OMX) was recently approved by shareholders. Involved in all these deals were highly skilled compliance and risk officers, often the “stop” and “go” lights for business.
In fact, having spent decades as a lawyer in Washington, D.C., I have observed first-hand business and government taking the speed of business to a screeching halt –often through regulations and compliance.
Conversely, I have watched new regulations serve as a launching pad for the proliferation of unimaginable growth and change of an industry.
Such was the case in telecommunications, where I was privileged to provide input to the Telecommunications Act of 1996. Though the act seems like folklore, it was the beginning of a deregulated environment that brought forth unprecedented change leading to the proliferation of communications today. Needless to say, regulatory change unlocked the telecom industry for sustained growth. Now the same is happening in energy and financial services.
For companies to grow, merge and prosper, complying with the rules and regulations in telecom, healthcare, real estate, online business, banking and investments, to name a few, has become a full-time job for many. For others, finding the combination to unlock a clear path through a regulatory environment is often critical to success.
Compliance requirements since the turn of the century have been game changing for business. Consider Sarbanes-Oxley and the requirements it imposed on all public companies, or Dodd-Frank and the continued regulatory pressure on the public markets and banking and lending institutions. Now the Affordable Care Act requires teams of people and consultants to assure that states, health insurers and employers meet compliance requirements and measure risk.
Change can be driven by the need for fair competition, as is the case for deregulation, or rules imposed when disaster strikes – such as the housing collapse or the Madoff scandal.
Regardless, if the last 10 years is any indication of what is to come, we are faced with a future that will have more competition and more innovation, but also more rules of the road and more risk, not less. And for business to forge ahead, compliance and risk management officers must figure out how to unlock growth and mitigate problems.
The need to manage this regulated environment had led enterprise service companies such as Oracle (ORCL) and IBM (IBM) to offer new enterprise risk applications. While the demand for it indicates that technology is needed to keep up with the pace of the needs for risk management, people are needed to make final decisions. Additionally, as companies activate new compliance software to meet regulations, compliance executives must work hand-in-hand with information technology staff.
The need for highly qualified people has never been more apparent than the job listings we now are seeing for compliance officers. A phrase that is increasingly making its way into the lists of qualifications is this: “JD from an accredited law school preferred.” And, according to a 2012 article in Fortune about compliance jobs at banks and hedge funds, “At America’s Job Exchange, listings in the compliance space have exploded: There were 9,148 jobs with ‘compliance’ in their title for the second half of 2011, up from 221 a year ago, according to company president, Rathin Sinha.”
Further, the article noted. “… a law degree is critical for high-level positions. Leadership and good presence in the boardroom also help as compliance officers at investment banks and hedge funds work with top management.”
Having spent the past year as the dean of a law school, totally focused on where the jobs will be for our graduates, I see a pattern emerging. Demand for risk and compliance professionals with is high — those with a JD degree are preferred. Yet, the supply is low.
But as we continue to see more regulations that need to be managed and adhered to globally – and as more companies are slowed by an inability to do so – compliance and risk managers are going to be paid handsomely. For companies, it will simply make business sense. In this new world, law and business compliance and risk assessment are keys that open and unlock deals. Lawyers are needed not to say “no,” but to say “when and here is how.”
Companies and financial institutions will do anything to assure that the traffic light of business says “all systems go.”
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