Culture club
Boards should align corporate culture with “purpose, value and strategy”, according to a new report from the UK’s governance watchdog.
According to the Financial Reporting Council (FRC), sorting out culture can “stregnthen a company’s business model”. Sir Jon Thompson, the FRC’s chief executive, says a “positive culture” inside corporates would “boost” competitiveness and help improve “sustainable success”.
“More open and insightful reporting in this areas will also lead to improved access to both capital and talent,” he adds.
And the government’s white paper on audit is the “vital next step in ensuring that all stakeholders have trust in the quality of corporate governance, reporting and audit.”
Jon Moulton: UK audit ‘best in the world’
Not everyone shares Sir Jon’s faith in the audit white paper. Some are downright angry. Always forthright, private equity specialist and accountant Jon Moulton is not happy about it. In a dismissive article for the Institute of Chartered Accountants in England and Wales (ICAEW), Moulton argues that “the basic theorem that much of corporate reporting, governance and audit is inadequate and needs wholesale change does not survive any kind of analysis. Our UK audit profession may have its failings, but it is still arguably the best in the world.”
Corporate failures, he says, are “down to directors’ action and market environments”; the consultation document contains few costings; and the setting up of a new “audit profession” will “sideline” existing professional institutes. That means ICAEW members could see a “central pillar of their status dumped”. Moulton concludes by calling the white paper an “existential threat”. Oh dear.
Shared audits
While his views are duly noted, Jon Moulton’s intervention may be too late (at least in some respects). The Times reports that business secretary Kwasi Kwarteng has signed off on plans to introduce shared audits, a proposal contained in the audit white paper, which should give a boost to so-called “challenger” audit firms who would, under new rules, be appointed to work alongside Big Four auditors onFTSE 350 audits.
However, shared audits are only one among scores of measures discussed in the white paper. Moulton can go on frothing for a while yet.
The purpose of business (schools)
While not frothing quite as much as Jon Moulton, Oxford governance professor Colin Mayer is nevertheless concerned about the state of business schools and whether they are taking the subject of ESG and “corporate purpose” seriously in their courses.
While many schools have introduced optional units to their business curricula, few, according to Mayer, have taken the step of adapting their “core” courses. Writing for the Financial Times, he says business schools are still preoccupied with maximising shareholder wealth.
“Courses should begin with asking what the purpose of business is, why it is created and why it exists,” Mayer writes. “They should identify the rich variety of responses and build programmes to match. They should draw on interdisciplinary knowledge from across the humanities and sciences to provide the skills and values required for business in the 21st century.”
Mayer, as many of you may remember, is the author of a series of reports for The British Academy exploring the concept of “purpose” in business and giving it a definition. If anyone has some insight about the content of business studies, Mayer does.
S&P 500 sees rise in female directors
Good news for boardroom gender diversity in the US. According to a study by Pay Governance, women now hold 30% of the board seats across the S&P 500, compared with 18% five years ago. That means women now hold 2,700 more boardroom places than they did while men are down 1,900 seats. Pay Governance expects the departure rate of male directors to be four times higher than that of women in 2021.
FRC reveals focus for 2022
Disclosures against climate reporting guidelines will be at the top of the list of things to check in the New Year for the UK’s governance watchdog. The Financial Reporting Council (FRC) released a note this week warning companies what would be on the radar for its supervisory focus in 2022-23.
Spotlights will also be shone on reporting for mergers and acquisitions, earnings per share and deferred tax. Auditors can also look forward to watchdogs checking on their work of climate-related risk, fraud risks and that gnarly old subject, group accounts.
Ethical blindspots
Managers sometimes fail to properly acknowledge their own unethical behaviour, according to a blog by business ethics experts. Guendalina Dondé, head of research at the Institute of Business Ethics, draws the conclusion after reviewing results in the organisation’s 2021 Ethics at Work Survey. The research found that on average 44% of managers agree that minor breaches of rules are inevitable in a modern organisation, while 19% say it is “acceptable” to artificially increase profits in the books as long as no money is stolen.
“These results reveal an important point,” writes Dondé, “especially when we set out to assess an organisation’s ethical culture: sometimes, when we are asked to evaluate how ethical we (or our organisation) behave, we get it wrong.
“As many experiments in the field of behavioural sciences illustrate the way our brain is programmed often leads us to overestimate our ability to act ethically or to overlook situations where we might fall short of our own ethical standards.”