Fink tanks
If you’re Larry Fink, chief exec of BlackRock, the world’s largest fund manager, you now know that everyone—but everyone—is gunning for you. It wasn’t so long ago when there were complaints about BlackRock because it is an advocate of ESG. Those on the right of US politics burst multiple blood vessels over the possibility BlackRock didn’t like fossil fuels. (Who does? But there’s a transition to manage, right?)
Anyway, it emerged this week that activist investors Bluebell Capital had put a “target on Larry Fink’s back”, according to the FT, calling for his resignation because of BlackRock’s “hypocrisy” over ESG, which they say has politicised the ESG debate.
Now, Board Agenda does its navel-gazing from London, so we don’t have our finger entirely on the pulse of US governance debates. But from here, it’s hard to imagine that BlackRock alone is responsible for the intense debate around ESG and Wall Street, given that those on the right will simply brook no challenge to profit maximisation and the somewhat bizarre belief that companies are exempt from societal concerns. Anyway, as we’ve said before, this one is set to run and run.
Spin off or just spin?
Soon everyone will be in a Sinclair C5! Everyone will be driving a DeLorean! The future is Betamax! Remember those proud boasts? (You have to be of a certain age—Ed.)
Anyway, one statement this week that had a similar tone was from EY, long serving Big Four accountancy and professional services firm, when global managing partner Andy Baldwin declared that all other firms would soon follow EY’s example and spin off their audit arms into entirely independent firms.
Now, far be it from us to say he’s wrong, but Andy’s tone did recall previous business leaders talking up their decisions with an air of trying to convince themselves more than the markets.
PwC, Deloitte and KPMG have all put considerable effort into “operational separation” (a requirement for audit reform in the UK) with few signs yet, apart from EY’s claims, that they would entirely split.
Of course, it might still happen. But audit firms are slow to move. Don’t lay any bets just yet.
Audit fees set to jump
Speaking of audit, challenger firm BDO says companies should “brace” themselves for a steep rise in fees next year as auditors grapple with the extra costs of reform. Managing partner of BDO, Paul Eagland, says some audits could rise by 50%.
Certainly audit has been going through some changes and that all has cost. Board Agenda’s audit insider says 50% sounds a bit extreme. However, there is an acknowledgement that audit has been underpriced for years and some catching up has to be done, as well as meeting higher costs. (There may also be further costs if the government pushes ahead managed shared audits under its reform agenda.)
One problem for clients is a general perception that there is more work around at the moment than firms are able to handle (there’s a staff shortage), which auditors can walk away from those unwilling to meet the price. Unfortunately for audit committees, it is a seller’s market right now.
Speaking from the same hymn sheet
Ever sat in a board meeting and thought: ‘I can’t tell the difference between the CFO and the CEO when they speak?’ And: ‘Why is the company doing so badly?’
Here’s what might be going on: A team of Belgian academics measured language mimicry among leading executives and found that when CFOs copy the language of CEOs, it tends to be associated with “lower financial reporting quality,” or, to put it another way, restatements.
The team have an explanation for this. “We expect this relationship to materialise as CFOs engaging in mimicry of the CEO may be less willing to take up an active monitoring role and challenge the CEO on decisions affecting financial reporting quality.
“The CFO might do so in order to receive benefits such as higher compensation.”
So it might be worth listening to your CFO more carefully next time you’re in a meeting.