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Why Governance, Risk and Compliance Matter During a Recession

By Karl Kimball, Aston Carter Executive Advisor, Governance, Risk & Compliance

A Looming Recession Means Big Risk for Companies

Despite aggressive interest rate hikes by the Federal Reserve, inflation continues to have a stronghold on the U.S. economy. Attempts to cool U.S. labor markets and establish price stability have had a modest impact at best — leaving inflation well above the Federal Reserve’s long-term 2% target.

The U.S. job market remains strong, as widespread employment growth hinders the Federal Reserve’s inflation battle. In January, the nation’s unemployment rate fell to 3.4% — a 50-year low. With 62% of Americans employed, wage growth high and consumers spending at a steady rate, the central bank is expected to further raise interest rates to balance the labor market and drive down inflation.

In addition to inflationary pressures and an ongoing worker shortage, businesses are facing increased credit risk and delinquency as well as rising corporate debt, among other financial challenges. With fears of an economic recession looming, organizations should proactively position themselves for what lies ahead.

GRC Can Help Companies Navigate a Recession

The threat of an economic downturn is pushing companies to prioritize governance, risk and compliance (GRC). GRC is a modern, integrated approach that unites business strategy with risk mitigation and regulatory compliance. When implemented effectively, this framework can help organizations streamline costs, avoid regulatory penalties and drive stability amidst the uncertainty of a financial crisis.

Fraud — and Enforcement Action — Rise During a Recession

Recessions often reveal gaps or vulnerabilities in the regulatory landscape that can be exploited by bad actors. For example, the Paycheck Protection Program, or PPP, became “the biggest fraud in a generation.” While intended to help businesses survive the COVID-19 pandemic, the program issued $792.6 billion in government-backed loans to millions of borrowers without adequate vetting or verification measures in place. Bad actors seized the opportunity to submit fraudulent PPP applications and received, in some cases, millions of dollars in loans.

When fraud and other financial crimes are on the rise, regulatory bodies respond by bolstering enforcement. Regulators issue more penalties against organizations that aren’t compliant with current laws and regulations. In 2022 alone, financial institutions across the U.S. faced millions in fines for recordkeeping failures, consumer violations and money laundering. Stiffer regulation within the cryptocurrency space has also led to high-profile penalties and arrests.

Businesses can expect to see new regulations introduced during and after recessions. This means organizations must have the resources in place to quickly understand and comply with evolving rules and reforms. Governance, risk management and compliance experts are essential to identify and report fraudulent activities, while simultaneously ensuring that their companies remain compliant.

GRC Helps Cut Costs During a Recession

Every penny counts during an economic downturn. That’s one reason why investing in GRC is a smart strategy, especially during a financial crisis. GRC professionals are trained to keep customers happy, avoid compliance-related fines and support sound business decisions on behalf of their clients. GRC comprises three key functions:

  • Governance — Establishing, monitoring and updating corporate policies and procedures empowers organizations to ensure ethical practices, accountability and transparency with consumers and regulatory bodies.
  • Risk Management — Modeling, forecasting and analyzing risk for businesses and clients can position corporate leaders to make smart, data-driven decisions. For example, keeping an eye on debt restructuring can help protect companies and their clients from making poor investment decisions and losing their equity.
  • Compliance — Understanding and adhering to government rules and regulations protects businesses from enforcement actions, hefty fines, public scrutiny and costly redress to consumers. By integrating these practices, organizations can efficiently and effectively manage operational, risk and compliance complexities in the short and long term.

GRC Helps Build a Strong Foundation for the Future

Eventually, all recessions come to an end, but investments in GRC should remain a priority. GRC professionals have the knowledge and skill set to position their companies for success after the economy rebounds. Building and maintaining risk models — especially for credit, market and liquidity risk — is essential for making informed decisions. Combined with proper governance and compliance procedures, these strategies can help businesses remain stable through a recession and emerge ahead of their competitors when market conditions improve.

The Competition for GRC Talent Will Increase During a Recession

Demand for GRC talent increased throughout 2022, with many of the most in-demand skill sets seeing growth well above pre-pandemic levels. The demand for compliance specialists, for example, has grown 96% over the last few years. The labor shortage and a skills gap have made securing GRC talent a challenge for employers. Falling into a recession will make it even more difficult to find, hire and retain qualified GRC professionals.

While offering competitive pay for GRC talent is necessary, it won’t be enough to overcome a lack of access to qualified candidates. Companies must be willing to offer remote work not only to attract talent, but also to reach the candidates they need. Requiring that candidates live within a commutable distance shrinks an already limited talent pool and a remote strategy is essential to finding GRC professionals nationally and globally. Organizations that are unwilling to meet candidate demands will find themselves locked out of the labor market.

Establish a Pipeline of GRC Talent Through a Staffing and Workforce Solutions Partner

Working with a staffing and workforce solutions partner like Aston Carter can help businesses access an expansive pool of in-demand talent, including analysts, auditors and compliance officers. Aston Carter has unique expertise in the governance, risk and compliance space, and can quickly fill talent gaps thanks to a national pipeline of skilled candidates.

Aston Carter also offers consulting services, with consultants from some of the world’s top financial institutions leveraging their experience in areas like financial crimes, regulatory compliance, operational risk and more.

Contact us to learn how Aston Carter can develop, support or manage your organization’s GRC program.

Ready to consult on proven solutions that meet your needs?

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