UK Will Not Ban DRM

CNET news has reported that a petition calling for the ban of DRM in the UK has failed. The government rejected the petition and published a response claiming that "DRM could bring value to consumers".

In its response the government said:

DRM does not only act as a policeman through technical protection measures, it also enables content companies to offer the consumer unprecedented choice in terms of how they consume content, and the corresponding price they wish to pay,

It is clear though that the needs and rights of consumers must also be carefully safeguarded. It is reasonable for consumers to be informed what is actually being offered for sale, for example, and how and where the purchaser will be able to use the product, and any restrictions applied,

It seems that the future of DRM is still far from decided.

EMI's DRM Position in Jeopardy...

It appears that Warner Music has signaled an intention to buy rivals EMI which could be a major blow to the DRM'less future that had been suggested by EMI itself.

This is especially true given Warner Music's position on DRM which is probably one of the more vocal industry voices in retaining DRM, that said Warner makes it clear that interoperability is very important for the consumer.

There are a few hurdles to jump through yet before this deal is signed especially in the areas of assessing the "regulatory and operational risk profile" for both companies. Still, it appears that the trend of industry consolidation is not about to change.

The Overrated "Big Four"

In a report from Risk Management Magazine, a survey by Grant Thornton - the fifth largest audit firm in the US - unveils what we have always known; the hype around the importance of alignment with one of the big four is just that - hype.

. . . 67 per cent of those responding to an online survey who had "expressed a clear opinion" said it would make no difference to them if a company changed from a Big Four audit firm to another global or national firm outside of the Big Four.

And:

. . . the auditor backed it up by asking a US academic to study stock price changes over four years to announcements of a shift from either PwC, KPMG, Deloitte, EY and the former Arthur Anderson to Grant Thornton.

Dr Scott Whisenant, from the University of Houston, found "no statistically significant evidence of stock price decline in any of the announcement event windows I studied".

"These findings hold regardless of company size, including companies with sales greater than $500 million," he said.

Now clearly, the report is designed to support the audit services offered by Grant Thornton. However the underlying finding is far more broad reaching, and is in fact, nothing new. Many firms who are regarded by the big four as being 'boutique' and offering little competition, have nevertheless built their businesses through specialisation.

(The next time you are online take a look at the websites of the 'big four'. Is there anything they don't do? Realistically, do you accept that they 'lead the market' in all of these disciplines?)

These specialist firms are picking off large accounting firm clients who feel "unloved" and who are tired of the large fees; by offering better quality services at better rates.

Still, the results of these large companies are not exactly unravelling in front of them. But what is this financial performance built on? And how long will the market continue to support them in their current state?

Public Company Non-Financial Risk Reporting: Yay or Nay?

In "The Australian" Today (20/02/07) it reports;

The risk reporting idea of ASX Limited's Corporate Governance Council continues to attract attention in February 2007. Groups such as Australian Ethical Investment and the Sustainable Investment Research Institute are supportive of non-financial risk reporting. However, high-profile business leaders who have rejected the concept include Don Argus, BHP Billiton chairperson; David Gonski, an ANZ Bank director; and John Stewart, National Australia Bank's CEO. A manager of Portfolio Partners, Amanda McCluskey, has revealed that superannuation funds are keen to require greater risk assessment

This is an interesting topic. Many shareholders of public companies have long held that strategic risks should be reported as well as simply financial. After all even core operational risks give rise to the strategic risks within the register, and it is often these types of risks - when left untended - that have taken down companies.

Consider a recent case in New Zealand where a major electricity wholesaler mis-judged the impacts of a well forecast dry and cold winter - two attributes which make for a dangerous scenario in terms of lake levels. Combine this with the company's slowness to recognise and negotiate their hedging position at the expiry of the previous contract. Result? The company survived . . . just, and only after selling off their entire retail division. They lost $300 million in three months - not including the impacts on their share price.

Now consider that such risks are not required to be reported.

Financial management alone does not maketh the company, a fact lost on many CFO's and board members alike. Many are still grappling with the advent of IFRS - and pining for the good old days of GAAP and industrial/manufacturing based economies.

Still, how much reporting is too much? And if the executive and management can't get on with managing the business - as they are both qualified and mandated to do - without being interrupted every two minutes, then what kind of business will they have anyway?

No one doubts it is a question of balance, but whose version of "balance" should public companies adopt?

Warner vs. Apple...DRM to Stay!

The head of Warner Music Edgar Bronfman has said "DRM and interoperability are not the same thing" after Steve Jobs of Apple wrote an open letter to the music industry suggesting that DRM should be abandoned.

It seems that the Warner chief believes it is still possible to protect IP through copy protection mechanisms while ensuring that the consumer experience is vastly improved from the current market offerings.

This a valid point if all the major players in the market - hardware vendors, music companies and artists - will actually work together. If they can't agree to work together then the best way to ensure interoperability is, as Jobs said, to remove the copy protection altogether.

Out of the backroom. Into the Boardroom.

An interesting topic for the risk profession is one of how to avoid the function of Risk Management becoming another silo within the corporate beast. Critical data never seeing the light of day, nor creating positive management opportunities in the enterprise is a significant risk in itself, and sadly such a scenario is almost certain to occur as it does in other internal disciplines.

Building an "integrated risk function" is important. The steps to achieve this are:

* Start by constructing your ERM program
* Then automate that program using appropriate software toolkits (Datasouth Corporate Services recommends Methodware - www. methodware.com)
* From there consider the data you are creating, the database that the information resides on, and then ask yourself this:

How do I use this data to add value back into our corporate objectives, our bottom line, our decion making?

In our business, we are beginning more and more conversations which focus on the integration of risk software into Business Intelligence applications, banking software, HR software and the like. We're trying to create a great big roll-up of meaningful data and information - regardless of its source - for the purposes of "slice and dice".

In many ways this is nothing new in itself, but it is a central theme in promoting the function of risk management from out of the backrooms and into the boardrooms! It requires pooling thought leadsership from risk and technology departments, and working with the executive to marry data to the business. We all know that the information that a risk manager pocesses is of huge importance, but when placed in this context - how much more critical might that data be to overall corporate performance?

Senior Management Dropping the Risk Management Ball

In the research published by Datasouth Corporate Services into the risk management practices of NZ local government organisations this week, a common theme emerged. Obtaining senior management buy-in.

But why? Here we are in 2007. Our business and economic landscape is characterised by Globalisation, Commoditisation, Modularisation, Connectivity, Client Sophistication, Transparency and Governance (ask us about the 7 mega trends of professional practice). As a result public companies, the finance sector, and government organisations alike are all well aware of the need to run a tight ship when it comes to risk management within the governance framework. Surely the rise of ERM is proof of this . . .

Yet here we are, once again, pondering the dis-interest of senior management to such a critical management discipline, and in organisations central to our community well-being. Similar findings were made in a 2006 survey of NSW local governments.

Much has been written of the importance of 'corporate culture' in context of risk management. But culture is a leadership issue. Can it be said then that we have a fundamental leadership failing in local government on both sides of the Tasman? Perhaps it is more a case of the risk management disciplines still being relatively immature in the "acceptance cycle". Many however, would argue that such a defence expired some time ago. After all, the AS/NZS:4360 standard is one of the best in the world (it is being internationalised at the time of writing), and the related handbook for local government is six years old.

Still, this problem persists. It will be interesting upon the release of each of our annual reports, to see how this issue trends over the next five years . . .

The Rise and Rise of Reputational Risk

In recent studies undertaken across all manner of industry sectors, a common theme has emerged. Reputational risk is now one of the top five risks in four out of five organisations.

The power of brand is everything. Brand creates perception and as the old saying goes, perception is reality. Whether it is a major corporate working to secure existing market share and chasing tomorrow's, or a government agency navigating the vaguaries of political angst and public opinion - reputational risk has moved from a 'best effort' category, to being recognised as a formal risk category with highly scientific and measured controls.

Datasouth Corporate Services contends that a well executed ERM strategy will address many reputational risks by default, but the growing science in this area in irrefutable. For example, readers may be interested to learn that many well known corporate scandals, have an interesting common ground in their pursuit of the recovery of "hearts and minds" - a gentlemen by the name of Peter Sandman. A renowned US crisis expert, Mr Sandman has popped up most recently during the Cole Royal Commission into the well documented dealings of AWB in Australia and has been well known for his work with other troubled companies around the world.

Despite this being a rather extreme example, reputational risk is well and truly on the agenda. Of course many pre-existing operational controls and treatments will link directly to this area, but one suspects that the word "reputation" will now forever be a part of risk register reporting . . .

APRA Moves May Lead to Insurer Consolidation

In an article which appeared in Risk Management Magazine this week, the question is posed as to whether the "Australian Prudential Regulation Authority's (APRA's) recent swathe of new insurance regulation could prompt further consolidation in the industry".

This is but one example of the surge in compliancy that the overall finance sector is being impacted by, courtesy for the most part, APRA's regime of standards pertaining to internal controls and the like. Despite the obvious rise in cost of business for the affected businsses, naturally industry "outsiders" view these new requirements as positive. But what are the real impacts on the businesses that make up the finance sector?

Confusing the issue for finance sector decision makers is the potential conflict between industry regulators. Within the article Fred Hawke, partner specialising in insurance matters at Clayton Utz comments;

The ACCC would like to see more diversity in the insurance industry - that's in conflict with APRA's role which is made easier with fewer companies to regulate. Obviously APRA's job is easier if it is supervising six major insurance companies than 100 little players scratching around. But of course there is far less competition with fewer companies.

We are all aware of the need to ensure the robustness and integrity of our financial institutions, but what cost will the consumer and business markets pay in the process?

The Global Risk Gap is Increasing . . .

The Global Risks 2007 report released this month forecasts a widening gap between "the potential of global risks to cause massive systemic disruption and the ability of business and government to mitigate them" in 2007. This is in the face of the rapid advancement of risk management understanding and methodology in the past few years. Interestingly, one of the major talking points emerging from the report – released in time for the World Economic Forum (WEF) which takes place in late March 2007 - is that of the proposed creation of a new senior government appointment.

The 'Country Risk Officer' is apparently modelled on the chief risk officer (CRO) role slowly being adopted by organisations globally. The concept relies heavily on collaboration between countries described in the report as "coalitions of the willing around specific global risk issues" and offering "dynamic interplay between governments and business".

What do you make of this suggestion? An interesting and viable concept or simply academic indulgence?

EMI to Change the Face of Online Distribution and Remove DRM?

The following story at MSNBC.com cites the Wall Street Journal which has reported that EMI, the third largest music company and therefore a large influence in the music industry, is considering selling its music in an unprotected MP3 format.

If this eventuates, the vastly unpopular DRM component of online content distribution may be a thing of the past. This signals the most tangible evidence that copy protection is actually hurting the distributors, artists and anyone else associated with the sale of online content - will Apple's iTunes stave off any potential legislative murmurings and remove its DRM as well?

Worlds Oldest Newspaper Gives-up on...Paper

An interesting story appeared on Wired News today - the worlds oldest newspaper, Sweden's Post-och Inrikes Tidningar, will no longer provide a print edition but will instead move entirely to the digital realm.

Started by Queen Kristina in 1645, this must be the most ancient casualty of the digital age. It does beg the question for more modern companies - are you focusing enough on your digital presence?

Web 2.0 Explained...

If Web 2.0 is a term which still baffles you then the following video should help clarify a few things. Titled "The Machine is Us/ing Us" and created by Michael Wesch, an Assistant Professor of Cultural Anthropology at Kansas State University it is a very interesting look at where the Internet has come from and where it is going.

DRM to be Banned in Holland?

Without reading the entire article the following story seems to highlight that DRM's struggle in Europe is far from over. If the headlines are anything to go by then this is another nail in the coffin for a business model which is vastly unpopular with consumers.

There was some mention of an Internet tax in the story which is probably not a good thing, especially if it is remotely similar to the Net Neutrality Bill - which thankfully looks like it has been killed in the house by the Republicans.