Compliance Management Flaws

8/7/2019 Compliance Management Flaws

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Limitations of the research

This research is based on the structural study of J & M Fashion only and the

views given here cannot be generalized for all apparel manufacturingcompanies. The recommendations are based on the current work culture andapproach of the company.

GRC is a new term in business and there is no apposite definition available forit as it is based on two broad factors-

1- Self made policies of the organization &2- Conventional means adopted by any organization to enhance the

revenues.

Self made policies of an organization differ from any other organization andso is the GRC. What scores is the quality of management which depends uponthe type of policies, work culture & intellect of the top management.

GRC of a company which makes software is utterly different from a FMCGcompany. The staff requirement, production, advertising, financing, marketingetc of a FMCG company are different from a software making company. Forexample, if we consider advertising alone, a FMCG company can choose doorto door marketing but an IT company do not have such advertising strategies.So evidently the whole GRC structure will differ.

This holds the reason why this research and the recommendations given herecannot be generalized for all the companies even if they are in the samefunctional area.

What is G.R.C.


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GRC is an acronym for Governance, Risk management & Compliance). It isan umbrella term covering the approach of an organization over these areas.These terms are closely related; governance, risk management activities andcompliance are increasingly being incorporated and aligned in order to evadeconflicts and gaps. GRC encircles proceedings such as corporate governance,enterprise risk management (ERM) & corporate compliance with pertinentlaws and regulations.

Corporate Governance

Corporate governance is the set of processes, customs, policies, laws,and institutions affecting the way a corporation is directed, administered orcontrolled. Corporate governance also includes the relationships among thestakeholders involved and the objectives for which the corporation isgoverned. A statement of SEBI (Shares & Equity Board of India) committee

(India) on Corporate Governance defines corporate governance as theacceptance by management of the incontrovertible rights of shareholders asthe true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical businessconduct and about making a distinction between personal & corporate fundsin the management of a company.

(Corporate governance has varied definition as the set of rules vary from organization toorganization. The two definitions given here are in compliance with definitions given bycorporate giants.

Reference http//:www.corporateinto.org, http//:www.forbes.com )

Risk Management

Risk management is the set of processes through which management identifiesanalyses and where necessary, responds appropriately to risks that mightadversely affect realization of the organization's business objectives. Thereaction to risks typically depends on their superficial significance, andinvolves controlling, avoiding, accepting or transferring them to a third party .Whereas organizations routinely manage a wide range of risks (e.g.

technological risks, commercial/financial risks, information security risksetc.), external legal and regulatory compliance risks are arguably the key issuein GRC .

Compliance


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Compliance means conforming to affirmed constraints. At an organizationallevel, it is achieved through management processes which identify theapplicable requirements (defined for example in laws, regulations, contracts,strategies and policies), assess the state of compliance, assess the risks andpotential costs of non-compliance against the projected expenses to achievecompliance, and hence prioritize, fund and initiate any corrective actionsdeemed necessary.

Compliance management of a company is the management of its fundamentalresources and maintenance of adequate facilities like cafeteria, proper parking,sound electrical wiring, needed appliances like fan, air conditioners, watercoolers etc and the maintenance of hygiene. These facilities promotecompetent work culture and the employees tend to respect the organization asa whole.

Upholding a proper compliance management is a law under Company Act-1956 and is subject to audit by special compliance auditors frequently

GRC is a relatively new term, as governance, risk management andcompliance are all considered "new-fangled" categories of businessmanagement. While it may be difficult to assign a specific definition to GRC,since it can mean many different things to many different businesses, it isgenerally accepted that GRC is an approach taken by firms to ensure they act

in accordance with the self-imposed guidelines set for each category.

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The DNA of the company

J & M Fashions is an export house run by Mr. Manish Sarin. The company iscelebrating its second anniversary as a successful exporter to the buyers likeTarun Tahiliani Ready-to-wear, Zara, Zero, GAS, Greystone etc.

Mr. Manish Sarin has 20 year work experience with Tarun Tahiliani. Thecompany runs as a stereotype export house. The staff consists of mostly youngpeople with a progressive mindset. The goal of the company is to satisfy thedemand of client by providing super quality finishing and high definitionpackaging. To achieve this goal, company has employed some of the finestMerchandisers, Pattern Masters & Tailors.


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Any organization requires a specialized analysis that involves specifying theobjective of the business venture or project and identifying the internal andexternal factors that are favorable and unfavorable to achieve that objective .

This special methodological analysis is known as SWOT analysis which is an

acronym for Strength, Weakness, Opportunities & Threats. A study of thework system of J&M Fashions concluded to the following analysis on SWOTdegree.

STRENGTHS

J&M Fashion is a newbie. Its a two year old venture founded by Mr ManishSarin who has a massive work experience in the same functional area. Theexperience of the founder adds up to 60 percent of the whole organizationalstrength the other 40 percent though coming from reliable workforce and

proficient workmanship. With the help of his unparalleled flair in marketingand brilliant PR, he has successfully gained buyers from the entire subcontinent who keep the venture wheeling. This rotation of the products adds tothe total revenue and fetches finance to the company in terms of profit.

WEAKNESSES

Considering it a new venture, it has N number of flaws, one of which (GRC)is described in this research. Some of the other points are mentioned below-

a- The colossal work pressure on the middle and lower management.This results in diminished production.

b- Flaccid attitude towards modern technologies.c-

Non involvement of the experts in the top managements decisions.

d- Lack of lucid instruction flow from the top management to the middlemanagement to the workers.

e-

Use of conventional means of production.

OPPORTUNITIES

Mr Sarin has immense experience in this functional are which can result intogain of lot of opportunities. Company is located at Hero Honda Chowk. A bigbrand by the name Orient Craft is located in same area. This can be useful intwo ways-


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1- Being a big brand, orient craft has quality workers and experiencedstaff which, if hired by J&M Fashion can fetch them bigger outcome.

2- Being the only brand working is that area has reduced the competitionto a perceptible extent.

Fashion market is an ever growing market and with the pace its growing, it isexpected to touch a global revenue of $600 billion in the forth coming year.This brings up an opportunity to cash the market by involving innovativetechniques of marketing and by investing in the promotion of customerlucrative products like organic clothing.

THREATS

J&M Fashion has many threats, the first one coming from competitors. Beinga rewarding market, Fashion industry is enthralling many business giants to

invest in this area, especially production. Many of these business giants eitherare either owner of big textile brands or are planning to set up textile factories.Producing textile will surely cut cost of their production and hencecompetition will further go fierce.

Lack of adequate facilities and non employee friendly environment of thecompany may hamper the accountability of the staff.


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P.E.S.T.E.L. ANALYSIS

PESTEL is an acronym for Political Economical Social TechnologicalEnvironmental and Legal factors affecting the company.

POLITICALDisinvestment and globalization policy of the government has always beenfavorable to the industries. The policies of the government are in favor, theonly repulsive factor being the taxes.

Tax Policy - Sales tax has not observed any remarkable growth in the recentyears for domestic enterprises. VAT is the only new tax which counts 4.1% of the total turnover. This tax tends to negligible in counted on single quantityscale.

Environmental Law - Government of India has strict norms for theenvironmental issues. With numerous NGOs working is the same bearing, notabiding by the environmental laws may bring with it perilous consequences.Being a production house, there is almost negligible air pollution but J&MFashion is inert towards proper disposal of inorganic waste and putrid fabrics.

Trade Restriction - The Import Export Policies of GOI are flexible and theyvary from trade to trade depending only upon the total revenue of thecompany. Medium Scale Enterprises (MSEs) like J&M Fashion enjoy manytrade concessions like low tariffs, right to trade in any part of country and

abroad.

ECONOMIC

Economic Growth - Apparel market has always been an ever growingbusiness. With a gross revenue over $300 billion, its a huge market to investin. In India, garment business is on a boom. With the increasing demand forquality garments, more buyers from across the globe are investing in Indiawhich can be extremely profitable to an Export House like J&M Fashion.

Interest Rates - With the new banking interest rates amendments it has

become much easier for the SMEs and the MSEs to expand their businessesfurther. J&M Fashion is a recent venture and government loaning policies hashelped it a lot. Due to high interest rates in the share market, the companymay also look for a chance for further investment in share market.

Inflation Rates - Apparel industry was one of those chosen few which waseither very partially or not at all affected by the blight of recession in early


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2008. The cost on machinery used and labor have not seen any remarkableinflation.

SOCIAL

Population Growth Rate - Garments are basic need of a people. This is thereason why garment business is directly proportional to the increase inpopulation growth rate. A country with population over 1.2 billion provides asheer platform the growth of the garment business. Population growth alwaysdecreases the number of jobs per person otherwise increasing number of person per job which results into cheap labor. J&M Fashion may utilize theabove data to enhance the profits of the company.

Distribution - J&M Fashion is an exporter of high end fabrics. Heavy andcostly garments are a cake walk for the rich. In India, there is very uneven

pattern in the distribution of the people. Most of the elite class who can affordhigh end garments lives in the metro cities like Delhi Mumbai etc. J&MFashion, located at one of the NCRs, comes in one of the profit makingregions. Raw materials, transportation, labor etc are easily available andcheap.

Age Distribution -

This data ( courtesy- http://www.investmentsu.com ) provides an overview of the percentage of dependents in India. This graph shows that the young agepeople (capable of working) are more on a higher side. This ratio is veryhelpful result that there is no dearth of able employees in India who are waycheaper from the countries like the UK & the US.


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TECHNOLOGICAL

Technology is one the major factors which contributes in the progress of anyorganization. Use of proper innovative technology reduces work load, savestime and increases the total revenue.

R&D - Research and Development in the backbone of any technologicaladvancement. J&M Fashion being a newbie has no R&D department. Beingan export house, the R&D part may be ignored but there should be a strongknowledge of the recent developments in the technology which are profitableto the company.

Technological Change - Fashion is no more a paper art today. Everything hasbeen mechanized and computerized. Computer Aided Designing (CAD) hasbecome a very important tool in the garment business. Many software like

SWICH COREL ILLUSTRATER etc are being used by differentorganizations even SMEs to cut short the time and cost of production. J&MFashion on the other hand is absolutely passive towards the innovativetechniques.

Outsourcing - Outsourcing is done to diminish the work pressure. The numberof orders is high and the total number of the workmen is less. This hampersthe accountability of the company. Many SMEs work as fabricators who seek for exporters who outsource their work. J&M Fashion has not taken any stepin this direction even when they no the fact that outsourcing is very common

now a days in every part of the globe.ENVIRONMENTAL

Climate - India has a varied climate which gives opportunity to the fabricatorsto get a hand on experience with different type of people. The changingclimate never affects the garment industry or a fabricator adversely as no suchchemicals are used which can alter due to climatic change. Further more, Indiahas no dearth for raw materials

With the strict government norms, all the production units are liable to be

audited on a regular basis. Environmentalists are much concerned even withthe quality of scrap and the way these are dumped.

LEGAL

Consumer Law - Consumer rights given to the customers have given themspecial power to file a suit against and company in the special ConsumerCourts, who in any way sell bad quality or false priced products. This


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apprehension has promoted quality and lowered the cost of the products.Being an exporter, J&M Fashion may become a pray of the consumer law if itdeviates from maintaining the quality and quality can only be maintained byusing modern technology.

Discrimination Law - India does not promote discrimination on the basis of cast, creed, color and state. There is a scenario of reservation in India but thatis not implemented in private businesses. This gives the liberty to thebusinesses like J&M Fashion to choose employees from every part of the stateindependent of their background.

Employment Law - Employment law states that every employee enjoys somespecial rights. One of those rights includes working in a safe and healthyatmosphere with basic minimum facilities.

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The Flaws

The goals of the company are set high and its employees hold the rightaptitude to achieve it. The crisis is with the infrastructure, security & the staff management. As this is an innocuous fact that right management is thebackbone of a company and any defect in the management can result inseveral obnoxious consequences. The organization is suffering from fewmanagerial disorders, inadequate infrastructure and flimsy securitymanagement.

A methodical scan of the company pushed forward N number of flaws in allthe three roots of GRC. J&M Fashion is a new endeavor and hence theseflaws are inevitable. What should be taken into account is the fact that thecompany should consider jeopardy of these flaws and install therecommendations suggested so as to avoid system overlap and to promoteprofit yielding capacity of the company.

Here, the flaws at all level are discussed separately considering the roots of the GRC.

Governance Flaws

As it is known that corporate governance is a set of processes and rules onwhich any corporate decides its policies, governance is the most fundamentalof all the roots of GRC.

The study of the Governance of J&M Fashion brought forward an unusual butexpected fact. The fact is that from the way the company functions, one caneasily wrap up that the top management is not aware of even the initials of Governance. Till date company follows conventional rules of garmentconstruction. There is no acceptance for the newbie technology, recentpolicies of the government and most importantly, the flaw in the flow of instructions from the top management to the lower management to theworkers and flow of complaints vice versa.

To understand this flaw we will have to consider the work flow chart of thecompany which is as follows


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The chart above shows the typical workflow of the company. The MD of thecompany alone is responsible for taking orders from the client (buyer). Afterthe deal is signed, the MD distributes the work to three managers holdingthree different departments and finally they transfer the work to tailors,drapers & Masters. In a single go it seems to a mechanic which all thecompanies follow and seems flawless as it is very conventional, but it is NOT.

The flaw lies in top management as well as in middle management.

Flaw at Top Management - As it being an export house, the survival of thecompany depends upon the buyers. In the scenario of J&M Fashions, the MDof the company is the only person who gets involved in dealing with thebuyers. It should not be the way it is. The competence of the MD isincontestable but, for the success of any corporate, the one to one decisions


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should not be taken by a single authority rather it should involve a panel of experts who can intellectually criticize the validation of the decision andsuggest means for up gradation.

Flaw at Middle Management - There are three managers at the middle

management level with different work silhouette.

a- The Manager upholds a dual responsibility of both manager andmerchandiser, both being two separate area of work though they seemto be similar. This system creates a lot of confusion and instructionoverlap resulting in the degradation of the actually flair of the person.Over pressure hence impede the whole process of the business.

b- Production manager should not hold responsibility for the qualitycheck. Quality maintenance is very crucial for any product and hencethere is always a separate department for quality assurance which

unfortunately is not there at the J&M.

Security & Risk Management Flaws

The overall management is not organized and company has no policy for risk

management. This reflects in its poor infrastructure and lack of responsibilityof the top management to take this issue into consideration. Company hasadopted no innovative way to increase the production and is working on thesame old fundamental. Workers of the company are not insured which meansthat there is no third party insurance of the workers. The consequences of thiserror can be disastrous.


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Compliance Flaws

Inadequate Infrastructure

The company is located at the suburbs of Gurgaon (at Hero Honda chowk).This area is still under development and lacks many requisite facilities likerestaurants, cigarette shops etc..

The company has no cafeteria where one can find something to eat

and, as mentioned earlier, there are no eating joints (not even dhabaas)here.

Then one can also find broken switch boards with live wires popping

out. This can lead to short circuit or some other huge casualty.

Cleanliness is also a major issue.

Defects at Managerial Level

The flowchart of the work distribution shown above indicates that the post of Manager (operations) & Sr. Merchandiser is handled by a single person whothey call manager cum merchandiser. Operations Manager of the company haswide range of responsibilities and it is very hard for a person to cope up withthe dual responsibilities of operation manager and merchandiser. Several

tribulations pop up due this dual responsibility which ends up in clashes andmisunderstandings between the manager and the operational staff.

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Recommendations

Every management has some or the other flaws and there are several reasonsfor the same. J & M Fashions is a just two year enterprise and these flaws arejust because of the result of lack of experience. The company has got much

potential and has a long way to go. Here are few recommendations that canexterminate these flaws and can be helpful in quality enhancement and canincrease the profit which is the bottom-line.

1- Two separate cafeterias should open up. One should be for Top andMiddle management staff and one should be for the lower staff. Thisrecommendation is based on the fact that no one can work efficientlywith empty stomach.

2- Instead of checking for the compliance management just for the sakeof escaping from the compliance audit, it should be taken as a routineprocess. A better compliance management results in the employees

accountability for the company The company never goes short of manpower if the employees of the company have full faith in thecompany.

3- The software used by the company for CAD/CAM are outdated andnew software like SWICH 2010 etc, which are way too fast andaccurate, are available in the market.

4- A Merchandiser should not be made to hold dual responsibilities as ithampers the net outcome. Manager (operations) should only take careof the operational affairs. Merchandising is a task with vitalresponsibilities and a separate person should take care of merchandising part. Asst. Merchandiser should be the whole sole

responsible for the merchandise and he should report to the manager(operations).5- To avoid getting into legal affairs, company should do third party

insurance of its employees. There are always chances for the mishapsespecially if the company is lacking in inadequate compliancemanagement.

Special Recommendation

A lot of surveys and polls conducted by World Bank, UNO and otherenvironmental agencies brought forward an interesting fact a large segment of

people in India are ready to pay extra for the green products especially fororganic clothing, which somehow, has become a status symbol.

Being an export house, J & M Fashions neither can earn profit nor canpromote green consumerism directly as it has to work according to the buyer.But indirectly, by working on the following concept, it can both promotegreen and earn profit. Promoting green can be profitable as the company willbe automatically advertised by environmental activists.


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The company can appoint a person who is adept in environmental affairs andalso proficient in sales. After taking order from the buyer, the ManagingDirector call this environmental expert and he/she can suggest the buyer aboutthe profit they can make if they promote green. He should work on the factthat people are ready to pay extra for green products and by working on green

products they can enhance their profit. If the buyer is convinced, he may giveorder for organic textile. Since there is no price limit set for organic products,the company can quote high prices to the buyer again keeping in mind the factthat customer is ready to pay extra for the green tag.

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THE CONCLUSION

SURVEYS BY UNO & NON

AVERAGE EARNING

PEOPLE


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Compliance Management Flaws

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