A publication from the IoD today: thanks to @dinamedland for the headsup. Nice word cloud on the front cover.
But why "great"? Is there a lesser governance debate? Is there a debate at all? And what is the purpose of debates? Motions carried or defeated? Is this a sensible metaphor for corporate governance? I think that good governance happens in all the small conversations between the people involved. The Cadbury Code was all about stimulating those conversations, providing a language and a framework in which they could take place. It certainly wasn't about measurement of any sort. (Henry Mintzberg recently offered some cogent words about this.)
I did get beyond the front cover. I got as far as page 8 and realised I could do with a cup of tea and a cuddle with my cats while pondering my own inadequacies with regard to statistics and wondering whether it would be worth trying to address these at this stage of my life. It didn't take long to conclude that I could manage without knowing what "support vector machine regression" means. It certainly implies academic rigour, as does the Cass imprimatur, so I parked my anxieties and turned to the conclusions.
Ok, these are interim conclusions, but really?
"Different questions give different answers"? Really?
"Companies with higher governance scores have reputational advantage." You don't say!
"High-profile companies have reputational disadvantage
Companies with lower scores in the predictive model (lowest tier) suffer from an average
reputational disadvantage of -42. High-street banks have some of the strongest reputational
disadvantages, ranging from -47 to -124."
Now that's quite interesting and might be worth exploring.
"Range of scores is relatively narrow.
We also note that the range of scores produced in the predictive model is relatively narrow. It
may be that lower-scoring companies are already moving to develop and improve governance
to deliver the levels seen by the higher-scoring companies."
That would also be worth investigating over time.
" Governance is a complex system. [Well, there's a surprise!]
The range of results from the instrumental factors in Section 6 above shows us that no single
factor can determine how well a company delivers corporate governance. Companies that
wish to improve their governance should address a wide variety of factors. Governance should
be seen as the responsibility of the whole organisation."
I would certainly take issue with that final sentence. I blogged about the problems of blurring of boundaries between governance and management last August and I'll have more to say on that in a future post.
This may not seem very positive: I should probably read the report in more detail, to be fair. But it's my contribution to the debate, for now. Is anyone listening?
Tuesday 16 June 2015
Saturday 13 June 2015
The truth about our norm core
Interesting article in today's FT by Tim Harford, pointing out that the classic studies of what has come to be called groupthink are too often quoted without mentioning the proportion of the subjects involved who did not follow the herd.
I'm still puzzled about the point at which consensus (considered good) becomes groupthink (considered bad). The evidence that board diversity will lead to less groupthink is very limited but this argument is frequently trotted out in support of board gender diversity.
And I'd like to see research on the relationship between consensus and diversity. In my research on audit committees, when I enquired about how contentious issues were resolved, board members told me repeatedly that dispute was minimal: many of their stories indicated that this was because consensus was achieved outside the board room through informal conversations. There have been many changes in the way boards work since I undertook that research but I doubt whether the importance of informal communication before and after meetings in achieving consensus has entirely diminished. How does that work for more diverse boards, I wonder?
Lots more interesting stuff to read:
A fascinating article by Paolo Quattrone on institutional logics: "Governing Social Orders, Unfolding Rationality, and Jesuit Accounting Practices: A Procedural Approach to Institutional Logics". A demanding read but worth getting to grips with.
Having read the sample chapter via Kindle, I was really keen to get hold of this and assumed that I would need to use the inter-library loan service, a ponderous process. The librarian who deals with ILL made my day when she told me that the Brookes library has it in ebook form!
I haven't read very far yet (and, because the author is a legal scholar, it has lengthy footnotes on every page so it's easy to lose track of citations, which I find very frustrating) but I like his initial analysis of the arguments which seems more comprehensive than anything else I've read. So far, there is almost no reference to non-US literature - I shall be ticking off citations against my lengthy bibliography on board gender diversity. I see that the empirical work was conducted in Norway: I hope he reflects on the difficulty of generalising from that special case.
Delighted with this, a freebie from OUP for reviewing a book proposal. It looks at accountability within everyday processes such as rubbish collection, traffic control and airport security, and how this relates to governance.
And a treat.
My other treat this week was listening to the wonderful Bob Monks speak at a CSFI roundtable event - always a pleasure to hear him speak, and I was able to give him a copy of the Cadbury book.
I'm still puzzled about the point at which consensus (considered good) becomes groupthink (considered bad). The evidence that board diversity will lead to less groupthink is very limited but this argument is frequently trotted out in support of board gender diversity.
And I'd like to see research on the relationship between consensus and diversity. In my research on audit committees, when I enquired about how contentious issues were resolved, board members told me repeatedly that dispute was minimal: many of their stories indicated that this was because consensus was achieved outside the board room through informal conversations. There have been many changes in the way boards work since I undertook that research but I doubt whether the importance of informal communication before and after meetings in achieving consensus has entirely diminished. How does that work for more diverse boards, I wonder?
Lots more interesting stuff to read:
A fascinating article by Paolo Quattrone on institutional logics: "Governing Social Orders, Unfolding Rationality, and Jesuit Accounting Practices: A Procedural Approach to Institutional Logics". A demanding read but worth getting to grips with.
I haven't read very far yet (and, because the author is a legal scholar, it has lengthy footnotes on every page so it's easy to lose track of citations, which I find very frustrating) but I like his initial analysis of the arguments which seems more comprehensive than anything else I've read. So far, there is almost no reference to non-US literature - I shall be ticking off citations against my lengthy bibliography on board gender diversity. I see that the empirical work was conducted in Norway: I hope he reflects on the difficulty of generalising from that special case.
And a treat.
My other treat this week was listening to the wonderful Bob Monks speak at a CSFI roundtable event - always a pleasure to hear him speak, and I was able to give him a copy of the Cadbury book.
Monday 1 June 2015
Chasing audit quality
The accountancy profession continues to struggle to demonstrate the value of audit to the wider world. Like the activities of boards of directors, audit is opaque: the title of Beattie, Fearnley and Brandt's prize-winning book on audit "Behind Closed Doors" was well chosen. If it is difficult to show what auditors actually do, it is even more difficult to assess the quality of what they do.
My recent reading has pointed up two rather different approaches to this problem, a difference which underlines the worrying gap between academic research and practice. Academics investigating the relationships which might affect audit quality use proxies for audit quality such as abnormal accruals. There is a sizeable literature dating back to de Angelo's widely cited paper published in 1981. This is a useful overview from 2004.
A practitioner reviewing some proposed research in this area recently observed: "..it has always been slightly unclear to me how you can establish an appropriate proxy for something that has itself not been clearly defined, and for which no agreed methodology of assessment has been developed."
The FRC seems to ignore all this and takes a pragmatic approach, well illustrated in the recent practice aid for audit committees, developed thus:
"The FRC organised five roundtables where an approach to assessing the effectiveness of the external audit was field tested, with a focus on audit quality and the financial statement process. The roundtables included key market participants relating to companies with a UK Premium listing – including audit committee members, investors, financial management and auditors, who gave feedback on the proposed approach, and shared some of their own experiences and expectations."
This would not pass the tests of rigorous empirical research (but is there any such thing? Paul Williams examines it here) but it has generated an analysis of the potential components of audit quality which recognises the subjectivity and judgement involved in its assessment but still offers a practical way forward.
Accounting academics are subject to all sorts of institutional constraints which militate against producing studies which could be of practical help to practitioners: they often complain that access to people is difficult, making ethnographic approaches, which could provide insights into behaviour, too problematic to undertake. But the fundamental questions which interest each group are the same. It would be in everyone's interests to bridge the gap.
My recent reading has pointed up two rather different approaches to this problem, a difference which underlines the worrying gap between academic research and practice. Academics investigating the relationships which might affect audit quality use proxies for audit quality such as abnormal accruals. There is a sizeable literature dating back to de Angelo's widely cited paper published in 1981. This is a useful overview from 2004.
A practitioner reviewing some proposed research in this area recently observed: "..it has always been slightly unclear to me how you can establish an appropriate proxy for something that has itself not been clearly defined, and for which no agreed methodology of assessment has been developed."
The FRC seems to ignore all this and takes a pragmatic approach, well illustrated in the recent practice aid for audit committees, developed thus:
"The FRC organised five roundtables where an approach to assessing the effectiveness of the external audit was field tested, with a focus on audit quality and the financial statement process. The roundtables included key market participants relating to companies with a UK Premium listing – including audit committee members, investors, financial management and auditors, who gave feedback on the proposed approach, and shared some of their own experiences and expectations."
This would not pass the tests of rigorous empirical research (but is there any such thing? Paul Williams examines it here) but it has generated an analysis of the potential components of audit quality which recognises the subjectivity and judgement involved in its assessment but still offers a practical way forward.
Accounting academics are subject to all sorts of institutional constraints which militate against producing studies which could be of practical help to practitioners: they often complain that access to people is difficult, making ethnographic approaches, which could provide insights into behaviour, too problematic to undertake. But the fundamental questions which interest each group are the same. It would be in everyone's interests to bridge the gap.
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