Issues Management

Defining an issue in an organization can be a very complicated and drawn out event between multiple parties. Some voices may be ignored or not taken into consideration while others may refuse to come to a consensus. The issues management process entails an abundance of sequential and interrelated steps and contains planning and implementation aspects that are interrelated. The first stage of the issues management process is the identification of issues. This step includes social forecasting, environmental scanning, and public issues scanning. The one element that is common to all of these techniques is the need to scan the environment and identify emerging trends that may impact the organization in some way. The financial crisis has taught us that organizations need to address issues at their earliest stages in order to prevent potential calamities. Businesses can assign specific departments to continuously scan environmental issues and monitor changes with compliance regulations. These findings can then be circulated via an internal report or newsletter so that employees are kept abreast of market conditions. Another way to spot trends in the industry is to summon the professional services of a consulting agency. These companies are experts in trend spotting and would enable financial firms to have a strong strategic management approach in place to counter social, cultural, and economic issues. The CDO market and lax financial regulation are two trends that were ignored during the two past two presidential administrations. As we march forward in the 21st century, financial institutions will be analyzed under a microscope. The derivative market will be just one aspect of the financial services industry which will undoubtedly be subject to stricter regulatory standards. Rating agencies, such as Moody’s and Standard and Poor’s, will have stringent guidelines in place when determining the credit risk of securities. Hedge funds will become regulated as investors and government officials clamor for the transparency that is clearly absent in the industry.

The internal perception and managerial treatment of issues greatly affects the issue identification process. Issues selling relates to middle managers exerting influence in organizations as they try to attract the attention of top managers to issues that are salient to the company. Issues buying is the process by which top managers adopt a more open mind-set for the issues that matter to their subordinates. This will continue to be an obstacle for major financial firms because executives in these companies wield a tremendous amount of power and tend to disregard the concerns of their inferiors.

The next stage of the issues management process is the analysis of issues. To analyze an issue means to carefully study, dissect, or break down any process that helps management understand the nature of the issue. This requires management to delve into the history and development of an issue as well as the potential relevance it may have to the organization. The step enables management to answer questions that may affect stakeholders. Issues such as derivative regulation, fiduciary responsibility, and executive compensation will become an integral part of the financial services business for many investment companies. It allows these firms to engage the appropriate group of stakeholders for each issue and place itself in a better position to prioritize the issues and address urgent matters.

The third stage of the issues management model is the ranking of issues. This process is done to screen out irrelevant issues and tend to concerns that are more imminent. There are a number of techniques when it comes to ranking issues, so it depends on each individual firm to decide which would work best for them. A company can simply categorize issues into different classifications or use a more sophisticated approach such as a probability matrix. Regulatory changes to hedge funds and derivatives should be placed on a high priority scale. This is a critical issue that warrants executive action and review. Rising debt levels are of concern to middle management and should warrant surveillance. This issue is interesting, but not as critical or urgent and should be given medium priority. A low priority impact is an issue that has potential impact and warrants monitoring by the public affairs department. Claims against a firm that one of its investment advisors was implicated in unethical trading practices should be evaluated by public affairs to determine whether the matter should be escalated to senior management. At the height of the credit crisis, some financial advisors, such as Bernie Madoff, were actually involved in Ponzi Schemes. These fraudulent scams promised high rates of returns to investors with little chance of risk. These scandals rocked the investment business and subsequently tainted the industry’s image. These social and economic issues should be given higher priority in times of distress, such as a financial crisis. Public affairs personnel need to be more cognizant of emerging trends that are surfacing that would require executive intervention.

Formulation and Implementation of Responses make up the next two stages of the issues management model. Formulation refers to the actions that a firm intends to take but also to the creation of the overall strategy employed in carrying out those actions. After formulation, our attention should turn to implementation of these plans. Aspects that need to be addressed in the implementation process include: clarity of the plan, resources needed, top management support, and organizational structure. As the century drags on, we will continue to see the shift of political and economic power from the United States into emerging markets. Financial institutions will be part of this transformation as business expands globally. We have seen some firms, such as Citigroup, divesting unprofitable areas of the firm to prepare for possible international expansion. John Bogel, founder of leading investment management firm Vanguard, strongly believes that the market share of the U.S. stock market will decline from 50% to 25% in the next 30 years or so. Bogel’s opinion reinforces the idea that many companies will try to implement a more global initiative as we progress in the 21st century.

The final step of the issues management model is evaluation, monitoring, and control. Companies should continually evaluate the results of their responses to the issues and ensure that these actions are kept on the right track. The stage also requires careful monitoring of stakeholders’ opinions. The information gathered during this step is traced back to earlier stages so that adjustments can be made along the way. Even though this model may not be used by all companies in every industry, unstable economic conditions around the world should raise a red flag for businesses, especially in the financial services arena. Sovereign debt concern in the European Union and dissatisfaction with Wall Street has left investors looking for answers. By committing themselves to a stringent issues management process, firms will begin to instill trust back in its stakeholders.

Issues tend to develop according to an evolutionary pattern. This pattern is sometimes called a growth process or a life cycle. This issues development process is vital for managers because it enables them to recognize a trend or event that may be a potential issue and what strategy needs to be employed in dealing with it. The early stages are usually marked by little action taken by businesses despite notice of potential issues. During the first stage, the issue begins to receive media coverage and catch the eye of senior management in the firm. Before the market crash in 2008 and subsequent bailouts, issues involving subprime lending and the CDO markets began to percolate. A short time later we saw increased media coverage and public awareness as stock markets plunged and investor fear became rampant. This is a classic example of stage two of the issues development life cycle. In early 2010, the Congressional hearings involving the CEOs of major U.S. banks illustrated stage three of the issues growth process. The final stage of the pattern would not be too far behind as Democratic Congressional leaders look to pass legislation for financial reform in the very near future.

        The role of issues management in business today has been relegated to a subset of activities performed by the public affairs departments of major corporations. Issues management usually does not function as a stand-alone activity but is included in a host of functions for which public affairs is responsible for. Issues management faces a serious challenge in business. If it cannot produce results, then issues management will become a victim in today’s business world. Issues management exhausts precious hours and manpower, so it may become an overlooked aspect of a firm’s business strategy. History has shown that companies who abide by the issues management principals will profit both in the short-term and long-term. U.S. companies who were affected by the economic downturn should look to implement issues management into their culture. A company who handles issues effectively will also be successful managing the interests and demands of its stakeholders.

          Issues management is used by firms to assist them in planning for and preventing crises. Effective issues management represents careful planning that may head off impending crises. This is because many crises are embedded in issues that could have been anticipated or analyzed in carefully designed issues management processes. The financial meltdown in the U.S. and other foreign governments exposes the many flaws in business and the overall society. Greed and poor issues management crippled the global economy and has cost innocent taxpayers billions of dollars. Strong financial reform must be put in place in the financial markets to make big business more accountable for their actions. By reducing the size and operations of these institutions, the government would allow these firms to collapse in the event of a similar calamity. The phrase “too big to fail” would no longer be considered in the equation. Issues management may be seen as a form of precrisis planning. It has been suggested that one of the most effective ways for keeping a crisis plan “living” is issues management. Issues and crisis management are different but are intimately related. This is why issues management may be seen as a bridge to crisis management.

        The investment advisory profession been greatly affected by unstable economic events in the past few years. With that being said, the financial services industry offers exciting propositions for many investment companies as well as the banking industry. In a best case scenario for the finance industry, we will some financial reform brought into legislation at some point in the near future. This will allow for more transparency of complex financial instruments and force companies to implement rigorous issues management policies. With the baby boomer population closing in on retirement, the financial advisor role will experience tremendous growth for individuals as well as corporate businesses. The profession will see demand for its services increase by 41% over the next six years. Investors will begin to believe in Wall Street once again as they look to nurture their nest eggs. A middle ground scenario for my profession would be continued uncertainty in the financial markets as well as with potential investors. The economy will improve, but will be stagnant at times and little ground would be made in terms of financial reform. The financial advisor role would grow at a fair pace, but investor sentiment would still be jittery due to volatile market conditions. In the worst case scenario, financial reform would not correct the inherent issues that are wrong with the American financial system. Firms would exploit loopholes in the law and continue to create complex instruments that are risky and unpredictable to investors. The economy will suffer through a double-dip recession and job growth in this country will be sluggish. The American public will not seek the services of professional financial advisors due to the instability of the global markets and amoral business practices of corporate America.

        As one can see, by drawing on past events and utilizing issues management initiatives we can forecast future trends in financial firms and the investment industry. The issues management process offers a model on how to approach trends in society. Issues management requires a strong grasp of strategic management, public policy, and corporate ethics. The recent financial crisis enabled us to get a comprehensive look of how financial firms can implement issues management in practice. There were many examples where senior management at U.S. investment banks missed warnings signs of an impending crisis. The past will hopefully serve as a history lesson for the industry and investment companies. Investors were blindsided by the apparent deception of the industry’s professionals. There will be a long road back to profitability and credibility for many institutions.  These firms must wade through unstable economic times and be prepared to operate under more transparency and complete overhaul of the financial markets. The global market for financial firms and advisory companies does look promising. Emerging markets and baby boomer retirees offer fantastic prospects for the industry. There are, however, many roadblocks ahead so a proper issues management plan must be in place to ward off looming crises.