Why Was the “Risk & Compliance Office” Created?
News broke that the entertainment production company LDH established a “Risk & Compliance Office” simultaneously with the launch of a new company for artist Hiroomi Tosaka (OMI). Many media outlets reported on the two points in parallel: the talent’s independent venture and the organization’s strengthened compliance. However, interpreting this move as merely “tightening discipline” misses the essence of governance.
In my experience supporting over 38 small and medium-sized enterprises (SMEs), one of the most common failure patterns is “the establishment of a risk management department actually slowing down business decision-making.” Risk management is not a device for “stopping” but a design technique for “advancing.” LDH’s recent move can be seen as a practical example of precisely that.
The Surface of the News and the Backstage of Governance Design
According to reports from Oricon News, LDH established the “BMSG Risk & Compliance Office,” stating its purpose as “thorough legal compliance and strengthened risk management.” Simultaneously, they are advancing business expansion and diversification through the establishment of a new company for a popular artist.
Here, SME leaders should ponder the question: “Why are they doing these two things simultaneously now?” In many organizations, new ventures or organizational changes (here, establishing a new company) are seen as “actions that increase risk,” and compliance department checks function as a “brake.” However, in ideal governance design, the risk management function should not be a “brake” but a “navigation system for safer acceleration.”
The LDH case can be interpreted as upgrading the “navigation system (Risk & Compliance Office)” at the same time as stepping on the “accelerator” of business expansion. This is a practical example of “1-to-99 design”—not trying to eliminate risk to zero, but figuring out how to advance the business within an acceptable risk tolerance.
The “Division” Trap SMEs Often Fall Into
Many SME managers might say, “We have compliance regulations too.” But haven’t they become just a “list of prohibitions”? Furthermore, are the department planning new ventures and the department (or person) checking risks completely siloed, ending discussions with a simple “yes or no”?
This is a typical problem created by “fragmentation,” not “division of labor.” Division of labor is about role allocation, but fragmentation blocks the flow of information and decision-making. As a result, creative business proposals get buried under a simple “It’s legally not allowed,” without sparking the constructive discussion of “Well then, what *would* make it viable?”
Three Actions to Design a “Risk & Compliance Office” as a Business Enabler
So, what should SMEs learn from this news and how can they apply it? Here are three concrete actions to transform the risk management function from a “department that stops business” to a “department that makes business viable.”
Action 1: Change the “Input” to Risk Management
Change the reporting/consultation process with the risk management department (or person) from a final check “after the plan is complete” to involvement “from the initial planning stages.” Specifically, establish a rule to always include the risk management representative in the kick-off meeting for projects like new product development, opening new client accounts, or overseas expansion.
Their role in that meeting is not to “shoot ideas down” but to think together: “From legal, accounting, and tax perspectives, what conditions or design changes are needed to make this business plan viable?” This drastically reduces the chance of a late-stage “no,” speeding up the project.
Action 2: Verbalize “Risk Appetite” as a Management Team
“Zero risk” is unrealistic and, in fact, creates the biggest risk: opportunity loss. What’s crucial is for the management team to discuss and concretely verbalize what level of risk the company can tolerate.
For example, criteria like: “Proceed if the maximum potential loss is within 5% of the current fiscal year’s projected profit,” or “Proceed if we can prepare a response manual and contingency funds in advance for potential legal risks.” If this “tolerance line” is shared, the risk manager becomes not just a gatekeeper but a designer who “translates” business proposals to fit within that line.
Action 3: Change the Decision-Recording Format to an “Option A/B/C” Type
Stop recording risk assessment outcomes as a binary “Go/No-Go.” Instead, adopt a format that always lists the following three options in parallel:
- Option A (Original Plan): The most ideal form. However, carries high assumed risk regarding [specific point].
- Option B (Modified Plan): Adds [specific] conditions to mitigate risk. Business impact is slightly reduced, but feasibility is high.
- Option C (Alternative Approach): Same objective, but a completely different method (e.g., partnership instead of in-house execution). The risk profile is significantly different.
Keeping this record ensures that even if Option B is chosen, the rationale behind “why not Option A” is communicated to future management. If circumstances change, reverting to Option A becomes a viable decision. This increases the “reversibility” of decisions.
The “Proof” Function of Governance, Seen from Another News Item
Another concurrently reported news item about the US medical device maker Allurion is also insightful. The company is contesting a delisting notice from the NYSE by submitting a compliance plan based on FDA (U.S. Food and Drug Administration) approval.
The key point here is not just that they are claiming, “We follow the rules.” They are attempting to “prove” the effectiveness of their governance and compliance system using an external, authoritative certification (FDA approval) as evidence.
SMEs can also apply this “proof” concept. For instance, when facing a strict compliance audit from a business partner, merely reciting internal regulations is insufficient. If you can additionally present “objective evidence” in the form of third-party certifications—like “We hold the [specific] Privacy Mark” or “This management process falls under our ISO 9001 certification scope”—explanation costs drop significantly, and trust increases. Governance design also has this crucial aspect of “improving efficiency in external explanations.”
The Essence of “AI Governance” as Demonstrated by Tencent
A report by Nikkei CrossTech on Tencent Research Institute’s “Four Shifts in AI Governance” reinforces our point. One of those shifts is “from post-facto regulation to pre-emptive governance.” This is precisely a recommendation to transform risk management from a function that “cracks down on violations after the fact” to a design function that “enables innovation from the outset.”
Even in the cutting-edge field of AI, the trend in governance is shifting from “stopping” to “designing.” This essence remains unchanged, whether in the music business, manufacturing, or retail.
Governance is Not a Cost; It’s the “Engine Oil” for Business Growth
The true meaning of LDH establishing a Risk & Compliance Office alongside a new company launch can be viewed as injecting high-performance “engine oil (governance)” to reduce friction and prevent overheating *before* the RPMs of the business expansion engine increase.
The lesson for SME leaders is clear. Governance and internal controls must not be a “cost” for auditors or regulators. They are a “design technology” to guide your business’s inherent speed and power more reliably and sustainably toward its destination.
Start with this: the next time a new business idea comes up, invite your risk management person not as the “final judge” but as the “first co-designer.” You will likely be amazed by the productivity of that meeting and the change in the quality of the business proposals that emerge.
Redesigning governance doesn’t start with the massive budgets or personnel of a large corporation. It begins by changing nothing more than “who you invite” to a single meeting.
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