Sunday, January 09, 2011
The hormone oxytocin plays an important role in the bond of trust between a mother and her child. In his introduction to the seminar ‘Vision on Governance’, held on November 29th, Leen Paape called administering oxytocin to supervisory bodies and those placed under supervision an option for the future! This seminar marked the start of the Governance Academy (Toezichtacademie) at the Nyenrode Business Universiteit. Several of the speakers advocated more trust within the field of governance while, at the same time, a tightening up of regulations was also discussed.
Tightening up of regulations as a response to the crisis
Effective November 1st, Paul Hilbers, Division Director of Supervision Strategy at the DNB (De Nederlandsche Bank), was appointed part-time Professor of Governance of Financial Institutions at the Nyenrode Business Universiteit. He provided further information on the topic of tightening up international regulations as a response to the crisis. An important factor in international conventions such as Basel 3 (banks), CRD 2-4 (also for banks), and Solvency 2 (insurers) is to create a level playing field; in other words, ensure that there are no major differences in the norms between countries. Hilbers cited new focus areas in the field of governance such as supra-institutional studies and macro-prudential supervision, whereby the influence of macro-economic market developments (such as the residential real estate market) on the financial sector is examined. Hilbers then briefly touched on the change in the DNB’s approach to supervision as a result of which a clearer distinction must be made etween regular supervision and intervening supervision. Furthermore, the role of the DNB’s Board of Supervisors must be expanded.
Effective November 1st, Paul Hilbers, Division Director of Supervision Strategy at the DNB (De Nederlandsche Bank), was appointed part-time Professor of Governance of Financial Institutions at the Nyenrode Business Universiteit. He provided further information on the topic of tightening up international regulations as a response to the crisis. An important factor in international conventions such as Basel 3 (banks), CRD 2-4 (also for banks), and Solvency 2 (insurers) is to create a level playing field; in other words, ensure that there are no major differences in the norms between countries. Hilbers cited new focus areas in the field of governance such as supra-institutional studies and macro-prudential supervision, whereby the influence of macro-economic market developments (such as the residential real estate market) on the financial sector is examined. Hilbers then briefly touched on the change in the DNB’s approach to supervision as a result of which a clearer distinction must be made etween regular supervision and intervening supervision. Furthermore, the role of the DNB’s Board of Supervisors must be expanded.
Sjoerd van Keulen, former senior executive at Mees Pierson, Fortis Nederland and SNS Reaal, is currently the president of the Holland Finance Center. This organization’s goal is to maintain a strong, open, and internationally competitive financial sector in the Netherlands. He compared supervision with self-rising flour. In Van Keulen’s view, the current avalanche of regulations and busybodies is not the solution and the costs of this institutionalized mistrust can only be lowered by increasing trust. He gave SNS Reaal as an example; this institution works based on the assumption that its employees and customers are respectable, decent people. These employees are trained to recognize their own inner ‘light’, which should illuminate when something is not right. Van Keulen feels that there is too much power concentrated in the hands of supervising bodies; they are legislator, police officer and judge all rolled into one. And he warned that the Netherlands should not aim to be the star pupil in the class: “Compared with China, we are the Communists now.”
Horizontal supervision: trust as a key concept
The baton was then passed to the Belastingdienst (the Tax and Customs Authority of the Netherlands). Deputy Director General Theo Poolen posed the question as to whether or not supervision without trust is actually possible. In the horizontal supervision model applied by the Belastingdienst, trust is a key concept. This definitely involves justified trust rather than blind trust and is based on a willingness to collaborate, on transparency, and on the competency of those on both sides to implement this collaboration. Trust in the tax authority’s own employees is also important; give inspectors the freedom to weigh up their own considerations. However, Poolen said that this system only works if the real bad guys are caught and punished.
The baton was then passed to the Belastingdienst (the Tax and Customs Authority of the Netherlands). Deputy Director General Theo Poolen posed the question as to whether or not supervision without trust is actually possible. In the horizontal supervision model applied by the Belastingdienst, trust is a key concept. This definitely involves justified trust rather than blind trust and is based on a willingness to collaborate, on transparency, and on the competency of those on both sides to implement this collaboration. Trust in the tax authority’s own employees is also important; give inspectors the freedom to weigh up their own considerations. However, Poolen said that this system only works if the real bad guys are caught and punished.
Enhanced relationships in the EULisette van der Hel-van Dijk is the manager of the National Organization for Supervision at the Belastingdienst, and has been appointed as Professor of Effective Governance at Nyenrode. During the seminar, she explained Horizontal Supervision from a European perspective. According to Van der Hel, the EU policy of ‘good governance in tax matters’ is expressed in a variety of ways in the different member states. In some of the countries, governance focuses more on the aspect of risk than it does on influencing behavior. However, ‘enhanced relationships’ are becoming visible in an increasing number of countries between supervisors and those placed under supervision. Among other things, Van der Hel advocates the development of collective methods and techniques and the transfer of knowledge in order to implement the actual collaboration at the individual case level.
The supervision of systems: Like a WWI tank stuck in the mud!
What do the introduction of the tank by the British at the Battle of the Somme in 1916 and the implementation of the supervision of systems in the Netherlands in the 21st century have in common? Eelco van der Enden, partner at PwC, core faculty Professor of the Tax Assurance program and PhD candidate, provided the answer: a new concept does not work if the organizational model remains the same. The problems that hinder the introduction of the supervision of systems are: insufficient knowledge and not enough bundling of knowledge, the lack of a norm, and the given that not all supervisors and organizations placed under supervision are actually suitable for such supervision. Van den Enden recommends an interdepartmental approach which will allow true synergy to be created. He says that an organization should be set up for the supervision of systems and it must be technically feasible to execute the concept in applying a known normative framework. In addition, people must acknowledge the existence of failing organizations.
What do the introduction of the tank by the British at the Battle of the Somme in 1916 and the implementation of the supervision of systems in the Netherlands in the 21st century have in common? Eelco van der Enden, partner at PwC, core faculty Professor of the Tax Assurance program and PhD candidate, provided the answer: a new concept does not work if the organizational model remains the same. The problems that hinder the introduction of the supervision of systems are: insufficient knowledge and not enough bundling of knowledge, the lack of a norm, and the given that not all supervisors and organizations placed under supervision are actually suitable for such supervision. Van den Enden recommends an interdepartmental approach which will allow true synergy to be created. He says that an organization should be set up for the supervision of systems and it must be technically feasible to execute the concept in applying a known normative framework. In addition, people must acknowledge the existence of failing organizations.
Chinese wallsGovernance is a profession: this was the conclusion of AFM director Steven Maijoor on the establishment of the Governance Academy, an occasion that pleased him very much. In his
experience, legislation and regulations follow a crisis. In good economic times, supervisors are
considered a nuisance, and in bad times, they cannot be strict enough in the eyes of society.
However, strict enforcement is only a small part of the AFM’s activities, according to Maijoor. A much larger part of the AFM’s duties consists of promoting willingness by working together, persuading, and advising. The hard part is determining when to apply a tough approach, and when is a milder approach is more appropriate. Unlike Van Keulen, Maijoor believes that he does not have enough regulatory authority and the AFM’s specific wishes are set out in its ‘legislative letter’ to the Ministry of Finance. One of the requests that the AFM included in this letter is to tear down the ‘Chinese walls’ between the supervision of financial reporting and the supervision of accountants organizations.
An inconvenient truth
In paraphrasing Al Gore’s film, ‘An Inconvenient Truth’, Nyenrode professor Marcel Pheijffer said: “Accountants had everything they needed to control the damage from the crisis, except perhaps the will to do so.” Pheijffer criticizes the profession from the inside out. His criticism is not only limited to the accountants, but also applies for example to the DNM and AFM. After all, what exactly happened with DSB, and will the measures taken in response to that fiasco prevent the next scandal? It is the University’s task to assess these matters. According to Pheijffer, the field of accountancy has gone from being a profession to being too much of a business; the firms are not sufficiently able to resist financial temptation. When asked, however, he said that he does not advocate more rules. It is his wish that accountants try to internalize the norms, such as those that the Nyenrode concept of the ‘solid accountant’ aims to achieve. In concluding, Leen Paape, the session chairman, reiterated the differences in vision between the DNB and the Belastingdienst. Which is better: more rules or more trust? An excellent question for the new Governance Academy to investigate!
In paraphrasing Al Gore’s film, ‘An Inconvenient Truth’, Nyenrode professor Marcel Pheijffer said: “Accountants had everything they needed to control the damage from the crisis, except perhaps the will to do so.” Pheijffer criticizes the profession from the inside out. His criticism is not only limited to the accountants, but also applies for example to the DNM and AFM. After all, what exactly happened with DSB, and will the measures taken in response to that fiasco prevent the next scandal? It is the University’s task to assess these matters. According to Pheijffer, the field of accountancy has gone from being a profession to being too much of a business; the firms are not sufficiently able to resist financial temptation. When asked, however, he said that he does not advocate more rules. It is his wish that accountants try to internalize the norms, such as those that the Nyenrode concept of the ‘solid accountant’ aims to achieve. In concluding, Leen Paape, the session chairman, reiterated the differences in vision between the DNB and the Belastingdienst. Which is better: more rules or more trust? An excellent question for the new Governance Academy to investigate!
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