Corporate Reporting blog

Credit crunch to the rescue

I thought you might be interested in my article (text below), which appeared in Accountancy Age (30/10/08) regarding how the planet could benefit from the financial crisis.

They’ve always said 'a week is a long time in politics', but given the events of the last week we might want to shorten the time duration, perhaps to 24 hours. When the history books are written at the end of this century, what will they be saying? My crystal ball is no better than anyone else’s but I suspect we might find the events of the last few weeks being analysed in a positive way.

I attended a sustainability conference a little while back. It was an opportunity to hear leading experts present the hard scientific facts on climate change, population growth and resource usage a much more toxic mix than that presented by the credit crunch.

As we considered the issues it became clear that based on the current trajectory of change we are likely to experience some very unpleasant situations in the second half of the century conflicts over energy, food, water and other resources, the displacement of a significant number of people living on the seaboard, the list went on.

We reached the view, which many others have reached, that in order to avert disaster we needed concerted action, a real sense of urgency. Put simply, we needed a catastrophic natural event, the like of which we haven’t yet seen.

So last weekend as I read the Sunday press I had a 'eureka moment'.

Why wait for the natural disaster when you can use a man-made event to the same effect? The credit crunch has, after all, resulted in the type of global behaviour we need to deal with climate change global leaders, working together to effect global change in a matter of days.

The opportunity we now have is to harness the collaboration and momentum achieved through the credit crunch to the larger issue of climate change. This may not be such a big ask.

I sense the events of the past two weeks will change the nature of the way corporates have operated for the past 50 years; furthermore we must recognise that lower economic activity does bring some benefits -lower carbon emissions for one.

And finally, and most importantly, the credit crunch has provided a stark reminder to us all in the western world that, in the final analysis, the only things that really matter in life are food, water and warmth.

I am always pleased to hear your views and comments on the postings , and to take questions about corporate reporting.

David

IFRS under fire - time to keep a cool head

The credit crunch has created intense debate about the role of fair value accounting in the reporting of the financial services industry. Last week the IASB eased its fair value rules in illiquid markets, allowing more instruments to be accounted for at "amortised cost". This did not appear to be enough for some in the European Union who want a further relaxation of the rules.

One can understand why some are reacting in this way, but there comes a point where change can undermine the reporting model and create less rather than more certainty in the market. This is the view set out by the Corporate Reporting User Forum in a joint letter printed in this week’s Financial Times. The letter is also accompanied by an editorial from Jennifer Hughes, who also highlights that meddling with the measurement model could undermine IFRS and all the work that has been invested over the past five years to develop global standards.

As you know, I have been challenging of the IASB on many issues and will continue to do so, but now is the time to keep a cool head in what is a very fragile environment.

David

Credit crunch – where next?

A couple of weeks ago I posted a blog to congratulate the winners and shortlisted companies of our annual Building Public Trust Awards.

The awards are a celebration of the best of corporate reporting by the UK’s leading quoted companies and public sector bodies. I just wanted to follow up on this by drawing your attention to Ian Powell’s (our new chairman) keynote speech.

The speech focuses on what Ian believes will be the direction of travel for the forthcoming months and years, and what the business community should be focusing on. It addresses three key areas: Regulation, Reporting and Responsibility.

The theme for this year’s awards was “A Step Ahead”. I suspect that is where we would all like to be in the forthcoming months.

David

Corporate culture, risk and reputation

The issues of human behaviour and corporate culture have come to the fore in recent weeks as the world tries to understand how the systemic risk arose and why markets unravelled so quickly. Some argue that the two drivers of the cycle are easy to understand - greed on the way up, fear on the way down.  This is clearly an oversimplification of a much more complex series of events, but what we do know is that behavioural issues were central to all the shortcomings in the system.

As any non executive, adviser or auditor knows the tone from the top and the culture of an organisation are critical determinants of how a business generates wealth and whether it is sustainable in the long run. Being a confident and at times domineering character comes with the role of CEO, the question is how ambition, energy, drive and determination are channelled into the organisation. When it results in a fear culture, a willingness to deliver come what may and the suppression of bad news, it's likely to end in tears. One can then add to the mix remuneration and incentive schemes that encourage excessive risk taking and which reinforce the wrong type of behaviours.

As someone who is interested in reporting and understanding how companies expose the inner workings that are critical to success, I think this is an area that is going to demand more time and attention in the coming months and years. I suspect the people section of annual reports will need to be rethought in conjunction with risk and remuneration reporting. Let's be clear - these issues need to be joined up.

On a related subject I was pleased to see a very interesting piece of research published last week entitled “Who’s doing the right thing”. It focused on organisational and individual ethics and was performed by Roger Steare, Professor of Organisational Ethics at Cass Business School. The research has profiled the ethical make up of 20,000 people who participated in an on-line survey. Here are some headlines from Carol Lewis' article on the research taken from The Times newspaper:

- Are women more virtuous?
- Wisdom comes with age
- Unethical Brits, ethical Americans
- Caring religions
- Are politicians really sleazy?

There's a lot to get your mind around given the numerous cuts of data that are available but I sense there are a number of gems within the research which will help us analyse and understand some of the behavioural traits that led to the credit crunch. Whether this survey is a window on the future, one where companies report on the ethical profiles of the organisation is anyone's guess, but don't be surprised if people reporting goes through some radical changes in the future.

David

The carbon footprint of the world’s largest companies

I thought you may be interested in the reports below:

- Global 500 Report
- FTSE 350 Report

- S&P 500

More information on the Carbon Disclosure Project can be found on either www.pwc.com/cdp6 or www.cdproject.net

As always, let me know your views by commenting on the blog, or by email.

David

Cash remains the king of the castle

At these time of turmoil it's nice to be reminded of something which has a certain degree of longevity, something which is sound and has stood the ravages of time; it's the simple adage that "cash is king". For any bankers reading my blog, I apologise for stating the obvious and rubbing salt in an already serious wound.

But given where we are in the cycle, and given that the real economy is starting to really feel the pain from the credit crunch, I thought it important to flag two articles in yesterday's Financial Times for those of you who may not have seen them. They are both related to the reporting of cash in company accounts. The first is a letter from the Corporate Reporting Users' Forum (CRUF), which highlights the importance of companies working hard to provide a clear reconciliation of cash flows to movements in net debt. I won't repeat what's in the letter other than to say that many companies do not make this easy for investors and in the current environment this may not be a smart move. "If in doubt, assume the worst" seems to be the mindset of many in the city. Encouragingly, many companies are going beyond the demands of IFRS to provide the necessary disclosures and the CRUF, together with Jennifer Hughes, in her accompanying editorial, are encouraging others to step up to the plate.

Given the state of the market, and where we might be by the February/ March reporting season, this has got to be good advice. I would also suggest that going the extra mile may be the right approach to other aspects of reporting. As cash is King so, I suspect, is transparency.

David