Tax and Twitter

I have some issues with tax. I'm happy to pay it, up to a point. The biggest cheque I have ever written was to settle the inheritance tax bill after my mother died and I really resented having to do it. The capital amassed by my father (and preserved by Mum) was formed mostly from his taxed earned income and it was being taxed again, which didn't seem fair.

When I sat my final chartered accountancy exams, if you failed one paper you had to retake the whole lot.  I always struggled with tax. It made no sense to me at all, there was no underpinning logic to the calculations. I failed the tax paper (in spite of expert revision tuition from an aristocratic future ICAEW president), got married, moved out of London and could not get a job with the biggest accountancy firm in the area, not because I hadn't passed my finals but because... they would only employ women in one department: tax. I went to work in the NHS, finally realised that all numbers are socially constructed fiction, resat my finals when heavily pregnant, got the precious letters after my name, dashed Husband's hopes that I'd do his business books for free and ended up, quite by chance, as an academic.

Obviously, I have never taught tax. I have kept well away from the topic (even when I discovered that tax guru Robert Maas was Bob who lived opposite when I was little, whose sister was my best friend). But a couple of years ago at the annual BAFA conference I went along to a session in the tax stream to support a colleague who was presenting and found something sufficiently interesting to stop me checking email on my phone. It seems that there is qualitative research in tax: who'd have thought it?

Back in April this year I blogged about cutting down on my reading and on Twitter. Well, it's partly worked. I cancelled the alerts and I no longer feel compelled to follow every link. But I haven't been able to break the Twitter habit completely, partly because I've found some even more fascinating people there. Following tweets from a few of my favourite accountants (@Truen Fairview, @nairobiny, @Bombarde16) led me to the fearsome critiques of @fcablog, many of which are directed at @richardmurphy. Now I've been reading Richard Murphy's blog on and off for a while, to find out why he seems to be the go-to commentator on all sorts of things. He is cut from similar cloth to my inestimable pal Prem Sikka: if such people didn't exist, we'd probably need to invent them. But the arguments that they provoke can be a bit wearing, often because of the tone. And I'm an academic: I want properly constructed and supported argument, couched if possible in elegant prose without jargon. Or numbers, because I'm never happy with numbers.

And in among the fretful sniping I found the charming @JolyonMaugham and his blog. Beautifully written. I am astonished to find myself reading for pleasure the words of a tax barrister. I can actually understand some of it. Or I think I can: I once attended a lecture by Stephen Hawking and came out believing I had understood everything he said because he made it seem to simple and obvious. Of course I didn't but the feeling persisted for several hours until I tried to explain it to someone else. (That's the real test of what you know. I was horrified to discover I knew so little about accounting when I started teaching it. If I'd been forced to teach tax I might have understood it eventually but I had enough trouble dealing with double entry: in my first ever class a first year student posed the great unsolved mystery of life: just why is debit on the left?)

Anyway, I now know what an APN is and all sorts of other things which will never feature in questions on Pointless or Only Connect but may lodge in the bit of my brain that stores stuff in case I should ever be a contestant. Today Jolyon has bravely offered a platform for others on his blog. To be honest, I'd rather read what he writes because he writes so well. And he is now wrestling with the problem of comments and whether and how they should be edited. A very time consuming and somewhat depressing, task, I imagine (I don't have that problem here, the passing traffic remains silent, as do my three faithful readers).

But why should I bother reading about tax at this point in my life? Well, at some point someone will no doubt make a connection between corporate governance and taxation and I might feel a need to pontificate.  <Checks Google Scholar> Yes, they already have and it looks quite interesting...

Every little helps...

The Tesco tale is so interesting that I almost wish I were still teaching - such a gift of a case study, we haven't had a meaty UK scandal for a long time. But what exactly is scandalous about it?

One important aspect is the highlighting of the very strange relationship that supermarkets have with their suppliers. When the perils of the demand for cheap food are discussed in the media, the focus is often on dishonesty by suppliers - the horsemeat scandal, for example, or poor animal rearing conditions. The trading practices of supermarkets are rarely discussed. I remember my shock years ago when interviewing an internal auditor who told me that milk suppliers operated without the protection of contracts and supermarkets could switch at a day's notice. Some of the media reports suggest that the revenue Tesco had booked did not materialise because the suppliers were refusing to accept the demands placed on them. In a previous post I was dismissive of the idea of supply chain governance but there are clearly ethical issues to be explored here and opening these up to media scrutiny is not a bad thing.

In terms of accounting practice, what, if anything, has gone wrong? Revenue recognition is, despite accounting standards, a very subjective area. Early reports have noted that Tesco's auditors commented on the potential difficulties in this area but suggest that the audit committee responded that there was no problem and adequate controls were in place. The audit committee members have impressive backgrounds but none of them appear to have retail experience. How far have they and the rest of the board relied on advice from members of the executive committee? With all the recent changes among senior management, it would not be surprising if that advice was at the very least confused. Does this support my view of the unintended consequences of the purely NED board? And what about the role of internal audit?

If, as has been reported, the issue was revealed by a whistleblower, I wonder how the Tesco system works. This could be seen as a positive feature in that the company listens to whistleblowers but what protection will be in place for that brave individual?

Watching all this unfold will make for riveting reading but we should not forget the consequences for individuals. Actions taken to retrieve the company's situation may mean job losses in stores and distribution, as well as in suppliers' businesses.

Corporate governance and management - a blurred boundary?

A Twitter conversation reminded me that I have never got round to writing a coherent summary of the invited presentation (podcast here) that I gave at last year's MARG conference at LSE. I think I mentioned in passing that preparing it was a bit of a struggle because I found it difficult to make a clear connection between management accounting and corporate governance, the topic of the conference.

What I *really* wanted to say was that management accountants seem these days to be in search of a raison d'être and it looked as if they were now clutching at the notion of corporate governance. This was the conclusion I had come to when reading the CIMA/IFAC invention of enterprise governance, which classifies corporate governance as conformance and "business governance", whatever that is, as performance. (The model is derived without acknowledgement from the model developed by Bob Tricker, twenty years earlier: I probably should have made that point more strongly but Bob is in my slides.) But that might have been a bit rude, given the audience, so I watered it down a bit and discussed the relationship between governance and management, rather than management accounting.

And I probably talked a bit too much about the history of NEDs but the book was not long completed and I was in the middle of interviewing NEDs so they were at the forefront of my mind. But I do think that the restructure of corporate boards has had two consequences which have not so far been discussed by academics, regulators or practitioners.

Firstly, as boards have become smaller and predominantly non-executive, most executives have been squeezed out on to an executive board. The structure that has evolved is effectively two tier which is interesting, because objectors to the creation of audit committees at the time of the Cadbury Committee report argued that they would undermine the unitary board structure, which they viewed as a Very Bad Thing. (Difficult to know why this was seen as so important for UK companies, other than the fact that two tier boards were common in continental Europe...)  And the main link between the main board and the executive board is... the CEO. Now, wasn't the whole thrust of corporate governance focused originally on constraining the power of the CEO? Hm.

Secondly, these disenfranchised executives seem to be claiming links to corporate governance by coupling their functional areas with governance, in meaningless combinations - marketing governance, sales governance, IT governance, HR governance, even financial governance. On examination, all of these misuse the word governance: they are concerned with management.

Does this blurring of meaning matter? I still haven't made up my mind. What do you think?

Stopping reading, starting analysing...

My plan to cut back on my reading has been quite successful but logging in to Google Scholar yesterday I found that it had a couple of suggestions for me to look at. Big mistake. I found myself reading an article which made me sigh.

The authors have developed a typology for analysing the quality of "comply or explain" reporting. All well and good: everyone these days wants to develop a typology. It's rather like years ago when we all wanted our own two-by-two matrix: I remember being very excited when I managed this when studying internal auditors' views of risk management. But...there is already a very good paper on the same topic which develops a taxonomy.

What is the difference between a taxonomy and a typology in the context of social science? I have always understood a taxonomy to reflect hierarchical arrangements whereas a typology just groups things together on the basis of characteristics rather than relationships.

Anyway, the authors do recognise the other paper and make some attempt to explain why their approach is different but if I'd been reviewing the paper I would have asked for a more detailed explanation.

But the source of my irritation is more fundamental. The authors note that there is a very limited literature on comply or explain, thus justifying their contribution. But does this matter? The intention of the Cadbury Committee in recommending comply or explain in the Code of Best Practice was to initiate conversations between investors and companies. Nowhere in the paper is the view of investors mentioned: the whole focus is on regulation and enforcement. Regulators have to justify their existence: that they call for improved disclosure quality is inevitable. But investors seeking information about corporate governance don't rely solely on published reports: they have other information sources. If they are unhappy about the quality of disclosures, let them pursue this directly with companies, exercising voice or exit.

Rather than sitting at their desks, churning out sterile analyses of explanations of non-compliance, academics could make a greater contribution by finding out what investors think and what difference such explanations make in practice. Much more of a challenge to get suitable data, of course, but surely much more valuable in assessing the practical effects of the comply or explain requirement.

That was a brief diversion and my reading is now focused on storytelling which is considerably more interesting. I have returned to interview data collected a decade ago, using a new perspective which I think may generate a third paper from the data. I have been planning to do this for some time but have been waiting for a Mac version of MAXQDA, software that I have used in the past. Finally this has appeared and I have downloaded a free demo version. I wonder if I can get all the coding done before the 30 days run out!

Being the awkward voice

I'm following tweets from the IIA conference: they have had some very interesting speakers and I'm sorry to have missed it all but @Truenfair is doing a brilliant job of tweeting the essence of what's being said.

There seems to be a common theme around the need for senior management to be challenged and thus for IA to pick up this role. This resonates with the long-promoted idea that NEDs should offer constructive challenge. All well and good but before the notions of groupthink and the Abilene paradox were so widely promoted we all seemed to believe that consensus was a pretty good thing and worth striving for. I'm starting to feel a bit sorry for all the executives suffering this bombardment of constructive challenge.

Those of us who are natural challengers (yes, that's me) are not always sufficiently skilled in the practice of challenge to use this predisposition in a way that benefits our employers and organisations. It is all too easy to cross the line between constructive opposition and destructive mischief-making. If, after regular challenge, you are marked down as the stroppy one, people will begin to assume that you challenge everything without good reason and your potentially valuable contributions may be ignored. Shaking off the label is very difficult: I learned to change my behaviour in meetings and, possibly more importantly, to pay attention to my facial expressions and body language.

What I most wanted throughout my career was to be properly managed. (The word management is greatly scorned in higher education, unless of course you work in a business school where it is taught, often by people who have never done it.) Over the years I worked for two deans who did manage me and I will always be grateful for the way that they helped me to progress but I've worked for many other people who just found me a great nuisance. I needed a manager who would see how useful my critical approach could be and would help me choose the topics and the arenas in which they could be most helpful.  I gradually developed sufficient understanding of the political environment of the university to be able to do this for myself but by then I think it was a lost cause as many people thought they could guess what I was going to say before I even spoke. Frustration with this led to the increasing temptation to be difficult just for the sake of it - a good signal that I was ready to retire.

I have sat on many interview panels. Sometimes I have seen good candidates rejected because they did not fully meet the criteria for appointment but where the hidden agenda was the sense that they would be difficult to manage, posing a risk to the group. But surely managing those people to bring out the best in them, for the organisation and for their own personal development, is just what management is about? (Managing the challenger: suddenly I see a consultancy opportunity opening up.. Or maybe an airport book..)

There are some points in organisational progress where challenge is really important - and where this disruptive innovation I keep hearing about can be really valuable. There are other points where people just need some calm space, possibly to reflect and regroup, and where challenge, however constructive, may not be positive. If challengers - NEDs, IAs, any sort - are constantly on the case and see this as their main role they may engender a standard response which negates the value of the challenge at the time when it is most needed.

Company secretaries deserve better

I have long been interested in the role of the company secretary. When I first started teaching at Oxford Polytechnic we offered courses leading to ICSA examinations and I taught the accounting course for several years. At that time, the accounting paper was very challenging: the questions were often more difficult than those of the accounting bodies' examinations. Our students had a good success rate and were clearly committed to pursuing the qualification and developing their company secretary role. I often wondered how they fared but had no opportunity to follow them up.

My interest was rekindled in my early research on audit committees, from a corporate governance compliance perspective. It became clear to me that the company secretary had an important procedural role but in those days it was not unusual to find that the finance director was also the company secretary, which gave him (or her: I did meet one woman holding the role, who told me that she had experienced more prejudice from being a member of CIMA rather than an FCA than she did on a gender basis) considerable power. My first encounter with the term "general counsel" also intrigued me as it appeared to subsume the company secretary role.

A position seen as combinable with other senior roles suggested that the company secretary community could be struggling to define itself professionally and this idea resonated with my subsequent study of internal auditors, another group viewed as chiefly responsible for compliance issues but in reality with a very much broader role (you can read more about this here ). So I chatted up some company secretaries and started attending ICSA conferences to find out more, in the hope of developing a future research project looking at how the role is interpreted in organisational settings and by company secretaries themselves, with broader potential insights into how corporate governance is enacted by practitioners and the way in which professional bodies and qualifications develop over time.

I'm still hoping to pursue this. There is very little academic research in this specific area so I am always keen to read anything that might be relevant. So I was eager to read the report commissioned by ICSA from Professor Andrew Kakabadse (see here: free but you need to supply some details before you can download it).

As a review of how company secretaries perceive themselves, which may have been the intention of the commission, it's a nice story and I can imagine that many ICSA members will be nodding away as they read it. Anecdotes are always good to read, especially if they confirm your own experience.  But from a team of academics, this is disappointing stuff. The method used to conduct the study is briefly mentioned but no detail about data collection or analysis is provided that might give the interested reader a sense of the authority of the study.

I don't think anyone would argue with any of the 12 key findings: intuitively one would sense that most of them capture what is already known about the role. The first finding is interesting:

"The role of the company secretary is much more than just administrative. At its best, it delivers strategic leadership, acting as a vital bridge between the executive management and the board and facilitating the delivery of organisational objectives."

This to me reads like the manifesto of a group seeking to capture board influence. In my presentation at last year's Management Accounting Research Group conference at LSE I talked about the blurred boundary between governance and management and noted that the development of smaller, independent boards had led to two issues of potential concern.

Firstly, operational areas were using the word governance inappropriately (sales governance, IT governance, supply chain governance, marketing governance etc) possibly in an attempt to re-establish influence in the corporate governance area now that they were relegated to executive board status: hence the blurring of boundaries.

Secondly, the CEO was now effectively the link between the board and the executives: given that the entire panoply of corporate governance regulation was devised to curb the power of the CEO, doesn't this position seem paradoxical?

If company secretaries are now claiming to be that bridge, this could potentially be an important defence against such a charge, but it is difficult to see how this plays out in practice. A properly structured qualitative research study could provide the insights needed. But this report seems to be little more than a collection of quotes from a loose group of interested parties. Company secretaries deserve better.

Glencore

The Professor is on holiday but she can't help reading the headlines. So Glencore has finally appointed a female non-executive director to the board. This seems to be a matter for rejoicing in some quarters. Vince Cable says it's a historic day for the FTSE, a fatuous remark. But it's all oddly reminiscent of Sir Ken Morrison's hold out against appointing any non-executives to the Morrison's board, all those years ago. He finally gave in to investor pressure. Did Morrison's perform better as a result? Difficult to say, isn't it?

Surely the time has come for every board to be free to appoint the best team to govern the company at any point in time? If every company explained the reasons for appointing every director, investors would have more detailed information and there would be no need for defensive positions as to why dubious proxies for diversity and independence have not apparently been met.

Good luck to Ms Merrin anyway. And to all the other company directors appointed this week, whatever their gender.