The Hampton Alexander report published yesterday provides some useful facts and figures but the general thrust is no different from any other similar report that we have read over the years.
I've posted this in a comment thread below an article in the FT today:
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Perhaps it's time to question some fundamental assumptions which underpin all these criticisms.
What exactly is the problem that increasing board gender diversity is designed to address? Companies with all male boards don't seem to be failing all over the place and there is a distinct lack of *robust* evidence to show that diverse boards perform better (anecdotes are not data and correlation does not imply causation).
Why should corporate boards be expected to reflect the diversity of the population as a whole?
Evidence that diversity among groups and teams may improve performance is frequently cited. But how far can this be applied to corporate boards which are a rather specialised type of working group with specific accountability obligations operating within a defined regulatory framework?
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Wednesday 14 November 2018
Thursday 1 November 2018
The Future of Corporate Reporting
So the FRC has finally pulled its collective finger out and launched a project to look at the future of financial reporting, something long overdue. The perceived problems with audit could usefully be addressed in this context, although the broad themes listed here make no mention of audit or indeed of the corporate governance framework within which corporate reporting exists. But it's a start.
I wonder if they'll bother to look at past work in this area - for example, the work done by the Scottish Institute in 1988, "Making Corporate Reports Valuable" or the (confusingly titled) 1975 discussion paper "The Corporate Report". The thinking embodied in these two publications is well worth revisiting.
Nor do the themes mention accountability which is central to the issue. Surely the first step in such a project must be to identify the groups to which companies are accountable. At the simplest level, these groups must be those providing the resources that a company needs to operate. The integrated reporting project has already had a good crack at defining the resources in terms of the six categories of capital but doesn't make the leap to establishing the information requirements of the resource providers.
This is the crucial step. What do resource providers want to know? Our present reporting framework is based on the historic assumption that resources are provided by the limited group of creditors and shareholders, the latter being viewed as owners who had purchased shares in the company and thus had a direct financial interest and were a homogenous group with the same information needs. The development of the complex investment intermediary chain challenges this assumption and needs to be unravelled to demonstrate how accountability works within it.
"The Corporate Report" broadened the scope of accountability to include other stakeholders but thereafter the accounting standardisation project took over and redirected attention, in my view unhelpfully because the notion of "decision usefulness" underpinning accounting standards was developed with no link to accountability.
Establishing the information requirements of resource providers is no easy task but the future of audit and assurance depends on it. Resource providers may have different views on how to assure themselves of the credibility of the information provided to them. This could lead to some really innovative thinking, not just about assurance provision but also about the regulation of reporting: who is it for and how should it be done?
So the fundamental questions for this project should be:
These are big questions. In framing them and seeking the answers, the FRC could usefully draw on the work of other groups looking at the fundamental purpose of the corporation - for example, this report published today by the British Academy, which makes proposals (based on rigorous research) to reposition the corporation in society. Such a repositioning has important consequences for corporate reporting and strong support from the accountancy profession for such an initiative could make significant change possible. Let's hope that the FRC is prepared for big thinking.
I wonder if they'll bother to look at past work in this area - for example, the work done by the Scottish Institute in 1988, "Making Corporate Reports Valuable" or the (confusingly titled) 1975 discussion paper "The Corporate Report". The thinking embodied in these two publications is well worth revisiting.
Nor do the themes mention accountability which is central to the issue. Surely the first step in such a project must be to identify the groups to which companies are accountable. At the simplest level, these groups must be those providing the resources that a company needs to operate. The integrated reporting project has already had a good crack at defining the resources in terms of the six categories of capital but doesn't make the leap to establishing the information requirements of the resource providers.
This is the crucial step. What do resource providers want to know? Our present reporting framework is based on the historic assumption that resources are provided by the limited group of creditors and shareholders, the latter being viewed as owners who had purchased shares in the company and thus had a direct financial interest and were a homogenous group with the same information needs. The development of the complex investment intermediary chain challenges this assumption and needs to be unravelled to demonstrate how accountability works within it.
"The Corporate Report" broadened the scope of accountability to include other stakeholders but thereafter the accounting standardisation project took over and redirected attention, in my view unhelpfully because the notion of "decision usefulness" underpinning accounting standards was developed with no link to accountability.
Establishing the information requirements of resource providers is no easy task but the future of audit and assurance depends on it. Resource providers may have different views on how to assure themselves of the credibility of the information provided to them. This could lead to some really innovative thinking, not just about assurance provision but also about the regulation of reporting: who is it for and how should it be done?
So the fundamental questions for this project should be:
- who are companies accountable to?
- what information is needed to satisfy that accountability?
- how best can that information be provided and assured?
- how should the accountability process be regulated?
These are big questions. In framing them and seeking the answers, the FRC could usefully draw on the work of other groups looking at the fundamental purpose of the corporation - for example, this report published today by the British Academy, which makes proposals (based on rigorous research) to reposition the corporation in society. Such a repositioning has important consequences for corporate reporting and strong support from the accountancy profession for such an initiative could make significant change possible. Let's hope that the FRC is prepared for big thinking.
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