By Chris Frye, CPA

Large and small businesses alike face a myriad of challenges when conducting their day-to-day operations.  Changing market conditions, increased competition, and rising costs are just a few of the issues that keep business owners and managers up at night.  In addition to these inherent challenges that have tested business models for decades, is the looming impact of current and potential regulatory reforms that will undoubtedly consume time and resources that were often scarce to begin with.

Sarbanes Oxley, Health Care Reform, and Federal Income Tax Reform are examples of “mega” reforms that often steal the headlines in print and on-line media.  Nevertheless, there are an infinite number of smaller reforms that escape national publicity, yet are unique to the critical operations of specific industries within our economy.  Whether you are in the financial services, construction, non-profit, governmental, technology, or a smaller niche industry, you are facing regulatory changes in some way, shape, or form.

The bad news is that these changes are not likely to go away.  Events of the past as well as future events we can never attempt to predict, will shape reforms and bring about changes that businesses will have to respond to or run the risk of failing or playing second-fiddle to competitors who were better positioned to respond to change.

It’s not all bad news though.  Businesses that proactively plan for and respond to the changes will emerge from the rubble as the leaders within their respective industries.

This article is not intended to provide a laundry list of regulatory reforms that your company might face.  Each business faces its own unique set of risks factors and reforms.  Rather than focusing on specific changes, we will look at how you can properly structure your organization to identify change and implement procedures to mitigate the impact of the change on your resources and ultimately your company’s bottom-line.

How Did We Get To This Point?
Unfortunately most regulatory reform comes about as a result of an event or set of events surrounded by negative connotations.  Enron, WorldCom, the dotcom bubble, 9-11, and Bernie Madoff represent a sample of publicized events that have led to increased regulation experienced by many businesses in operation today.  Taking a “rear-view mirror” approach, it could be easy to point to warning signs that could have raised red flags as to how these situations would unravel.  Nevertheless, it is usually highly unlikely to predict just how and when events of this magnitude are going to occur.

Time is of the Essence
The one thing that’s certain is that change is going to come about when you least expect it, and you need to be ready to respond swiftly.  Even the most prepared organizations are going to face reforms that seem to be coming completely from “left field.”  Still, with some exceptions, most regulatory reform comes with a certain amount of lead-time to permit a business to make the implementations necessary to carry out the desired change.  Whether the time is adequate or whether the change was warranted is always going to be up for debate.  All we can do is our best to respond within the time parameters that are available.  Procrastination and resentment of the changes often leaves organizations scrambling to meet deadlines, develop policies, and put procedures in place.

Keeping an Open Mind Regarding Change
It is human nature to be resistant to change, especially when we have been successful over the years with certain business practices.  As we have seen, most regulatory changes come about as a result of a failure, or series of failures that have had wide-spread impacts on society or at least an industry as a whole.  It is unfortunate that the actions of a few can be so detrimental to the operations of the majority of companies who are on the up-and-up.  Yet the goal of most of these changes is to protect some sort of public interest and prevent future turmoil.  You do not have to agree with the change to appropriately adapt.  Understanding and accepting why a change is happening will at least make it more palpable to put a plan in place to respond.

Communication is Key
According to the Harvard Business Review, 70% of corporate change initiatives ultimately fail.  This is normally the result of lack of communication and failure to get the entire team on the same page.  Most regulatory change is going to require buy-in, effort, and participation from individuals at all levels within your organization.  Overcoming the uncertainty that comes with change is normally the most difficult task.  Be as straightforward as possible when communicating changes to team members.  Provide “real-world” examples of how other peer organizations have been successful implementing a similar change. The factor that will likely determine the success or failure of an implemented change is convincing your team members that the end result will ultimately be positive.

Responding to Continuous Change
Like it or not, change is going to continue to occur.  It is important that risk assessment and change management procedures be incorporated into your overall strategic plans.  Individuals should be assigned responsibilities and be held accountable for identifying and responding to changes as they are handed down from appropriate governing bodies.  Utilize the information provided by trade associations and other similar resources that have been put in place to disseminate relevant information to your organization.  As a leader of your business, it is important that you set the tone as to the importance of keeping abreast of the regulatory changes that affect how your company operates.

Please contact your YHB service representative to determine the potential impact of regulatory changes on your organization.  Recent webinar recordings on Health Care Reform and Changes to Lease Accounting can be found under the “News and Announcements” section at www.yhbcpa.com.