Once upon a time in accountancy….

On Twitter this week, much to my delight I was followed by the excellent Sacha Romanovitch, the CEO of Grant Thornton. This prompted me to reflect on other excellent women who I follow there who are also making their mark in the profession and to wonder about their experience. Then I realised that, amazingly, this year it will be fifty years since I started my accountancy training. I hope things have changed... 

In 1968, graduating from the University of Manchester the proud bearer of a third class degree in economics and accounting (that’s another story…) I was articled to John Margetts at Peat Marwick Mitchell & Co in London. (My mum took a photo of me on the morning I started work: I look about 12 years old,  not 21. If I’d known then…)

Induction on that first day consisted of a lecture delivered by the head of what passed for HR in those days, one Commander Nightingale. The City at that time seemed to be full of men who had retired from the military but insisted on being addressed using their former rank. (Yes,  I’ve retired but I am still a professor because I have emeritus status, and please don’t ask why I’m not emerita…)

I don’t remember noticing any other women at that meeting although there were a few in that year’s intake. We were spread among departments and the only other woman I met on the internal training course which ran each month was Wendy from Singapore (who became a dear friend).

Among the Commander’s instructions was a strict warning that we were not to discuss our salaries so it was some time before I discovered that the male articled clerks were paid £800 p.a. as opposed to my £500. By that point I had already been told off for carrying a copy of the Manchester Guardian in plain sight (apparently I was only allowed to be seen reading the Times and the Financial Times) and warned that I should never come to work wearing trousers. My status as a token woman was confirmed by a supervising senior who observed that, as a Jewish woman, if I’d also had what he described as a “gammy leg” I would have ticked all the boxes.

At that stage of my life I had already learned that fighting back could sometimes be counter-productive and it was wise to choose my battles carefully so I decided to keep quiet and appear submissive. I wasn’t any sort of pioneer, I’m afraid.

The most senior woman at Peat’s at the time was called Pat Triggs. I never met her. She was spoken of with great respect by some but the general view was that, however good she was at her job, she could never be a partner simply because of her gender. I often think of her when people send me, as they often do, the famous Miss Triggs cartoon.

My department head, having created a minor incident by sending me on my first day to join the audit team at an Arab bank (they insisted that the audit team should be all male), realised that I could only be sent to more accommodating clients and I spent most of my first year in film companies in Soho. Throughout my training at every new place I had to explain that I didn’t have a machine with me because I was not the comptometer operator. 

In my final year, working on the audit of a major UK retailer, I was alone at lunchtime when the finance director appeared. “Where are the lads?” he asked. I said that they were all at lunch but, as I was the most senior person there that day, perhaps I could help. The look of horror on his face was memorable: “They’ve left a woman in charge?” he spluttered.  He left in a hurry, apparently to phone the audit partner to check.  I was quite impressed when he returned later and apologised profusely: he said he had no idea that Peat’s employed women other than secretaries and comp operators.

Articled clerks were occasionally invited to formal dinners with partners. Wendy and I were quite excited when we both received such an invitation, shortly before the end of our training. The dinner may have been at the Caledonian Club: I remember predicting to her that the menu would consist of various things I wouldn’t be able to eat, starting with prawn cocktail and haggis that would be piped in and served with neeps, all of which was correct. We arrived dressed up to the nines and were escorted to the rear entrance (are you surprised? There must have been some special dispensation to allow us to attend at all.) We were seated alternately with partners and after every course they all moved round so that the clerks got to make polite conversation with all the partners. I’m not sure if Wendy and I were expected to leave when the port appeared but by that time I was determined to stay put. And then a box of cigars came round. My uncle Mark had taught me how to smoke a cigar so I took one. A horrified silence descended on the room. That may have been the point when I realised that no-one was going to invite me to stay on at the firm after I qualified.

The three years of my training were generally unpleasant because of the behaviour of the men around me but very character building. I left Peat’s with considerable relief as soon as my articles ended. But, towards the end, the finance director at one major client often went out of his way to chat to me and even took me out to lunch. He was very keen to know about my experience as a lone woman. I felt obliged to paint a rosier picture than the reality. Many years later I was told that this charming man was so impressed that he persuaded his daughter to train with Peat’s. She ended up as a partner and the first female president of ICAEW. If I really did have some small influence on that, I feel rather proud and very glad that much braver women followed me.

Evidence based?

A couple of weeks ago the apparent banning of certain words in the US caused considerable concern. The context of this news report is important, as this article makes clear. So it’s probably a lot of fuss about nothing, although as a signal of what is going on in within the US government it may point to a worrying trend.

I don’t agree with banning language in general but conversations about this report, with particular reference to the term “evidence based”, have prompted some reflection. I think it would be no great loss if “evidence based” fell out of use since its meaning is unhelpful. (I’m not planning to delve into philosophy, law or any relevant literature: these are just some fairly random reflections, based on my own experience, and occasionally informed by Google. Does this count as “evidence based”? )

“Evidence based” usually precedes the word “policy” or “practice”.

Evidence based practice seems intuitively like a Good Thing, especially in the field of medicine. You’d probably want your medical practitioner to be using treatments that are tried and tested, which is what the description implies.

Google Books Ngram Viewer shows that there was a very steep rise in the use of the term through the 1990s, levelling out since 2004. Medical practice is where the term “evidence based” first arose, which is slightly worrying, given that it is so recent.  What was medical practice based on before? According to Wikipedia evidence based practice is contrasted to “rules of thumb, tradition and folklore”. (Folklore must surely have its place: aspirin is derived from plants in the willow family which were used in folk remedies long before the 19^th century discovery of salicylic acid. )

I don’t know anything about the politics of medical research but some superficial investigation online suggests that the term was introduced by Cochrane who advocated randomised controlled trials to support medical practice. You can read about him here  and here.

You can also search the Cochrane database.

 This provides a clear summary of systematic reviews of all the available evidence collected from reports of clinical trials etc. Importantly, it notes the extent of the evidence summarised and draws conclusions on the strength of the evidence.  But a word of warning: if you spend much time in the Cochrane database you may start to wonder what we do actually know about medicine with any certainty… For example, if you have been encouraged to have a flu jab, you might want to read this and consider whether it was worth it.

But I’m more interested in the application of the term to policy because I think this is more problematic. Googling “evidence based policy” throws up a huge  number of links (and alerted me to this book which looks very interesting and apparently critiques the Cochrane approach.)

There is an extensive literature on “evidence based policy”. Ngram shows that the term developed at around the same time as “evidence based practice”. Possibly the widespread adoption of “evidence based practice” led to some questioning of the evidence base of health service policy.

As individuals, we have our own criteria for judging the quality of arguments put to us. These may vary widely because such criteria will not be based solely on scientific evidence that we know about but will also be moderated by our own beliefs.  (The balance may not always be in favour of scientific evidence: see, for example, climate change deniers. And there is still a Flat Earth Society.)

So the value of evidence in supporting arguments is likely to vary at an individual level depending on all sorts of contextual factors. What about at the broader level of society?  If evidence based policy is a Good Thing, what evidence will be used and how will it be used in developing policy? How will ideology and evidence be balanced? Does “evidence based” mean that evidence outweighs ideology?

Here are two examples of policy making relating to corporate governance.  As far as I’m aware, neither of these have been claimed specifically to be evidence based, although they clearly are - to a varying extent.

1. The establishment of the Cadbury Committee was driven by the agenda of professional accountancy bodies, seeking to deflect attention from criticism of auditing , following several financial scandals.  The process of preparing the draft report involved the chair talking to interested parties - the intention was to produce a code based on best practice so these were generally practitioners of corporate governance. He also read relevant material and with the help of the secretary produced papers for discussion by the committee. Comments were invited on the draft report and the Code and recommendations were prepared thereafter. The evidence used did not include academic research: notably, academic studies had already questioned the monitoring efficacy of NEDs, which was a key assumption of the Cadbury Code.

2. The original Davies report on board gender diversity cited supporting academic research but ignored empirical studies which raised questions about the possibly negative consequences of implementing requirements about board composition. 

Each of these policy developments involved a process. Consultations took place. How reliable is the consultation process in collecting evidence? That’s difficult to judge because the process is often opaque. What are the evidence boundaries? Will gaps be identified?  A year ago I was involved in analysing responses to a UK government committee consultation. At the behest of the committee secretary, these were summarised according to respondent categories. One obvious category of interested parties had not provided any responses: although I drew this to the attention of the secretary, I don’t know if it was noted in the papers provided for committee members.

And who decides which interested parties will be consulted? And how will they be consulted? And what weight will be given to their views? How will the information they provide be presented to the ultimate decision makers? 

All policy is evidence based. Did the policy arise out of the evidence? Or was the policy  developed and evidence collected to support its advancement? Who decides what the evidence shall be, how it shall be collected and how it shall be interpreted?  I think the term “evidence based” implies that this process is neutral and objective. I don’t think it is.  You can’t take the politics out of policy. 

Culture again

It's been a while since I mused on culture here. I've been waiting to see whether policy makers and regulators would come up with any good ideas beyond a lot of handwaving about how important it is. Or even any bad ideas, like trying to measure it or prescribe it.

Today I came across an interesting paper on the subject, the first I've found that attempts to examine culture empirically beyond anecdote.

The authors conclude:

"While economists are increasingly aware of the importance of corporate culture..... limited empirical work exists on the topic, in part because it is difficult to measure. Before we started this project, we thought culture might be too amorphous to quantify. Then in interviews with CEOs and CFOs, we heard loudly and repeatedly, how important culture is, especially from CFOs who are typically the numbers people and among those one might expect to be suspicious of hard-to-quantify aspects of the business environment. We believe that our paper conveys a powerful message that corporate culture does matter, a lot. We are aware that our study is just a first cut at this very difficult but important problem. We also fully realize that causal inference is not possible. Nevertheless, we believe the magnitude of the topic means it deserves substantial research going forward and we hope our paper helps build a bridge to enable such future work."


To my surprise, at first reading there are a number of things that I like about this paper. I like the model in figure 1 which links culture with formal mechanisms. I like the fact that the authors started with some interviews. I like the fact that they have included the survey instrument and I like the penultimate sentence in the paragraph quoted above. I need to read the paper again to see if I find their interpretation of the stats convincing. And I need to ponder a bit on their definition of effective culture. But the paper deserves wide circulation and could prompt some interesting discussion. And it would be good to see it replicated in a UK and European context.

Great Expectations

Recently I have been reflecting on expectations. This was initially prompted by the change in attitude to Aung San Suu Kyi, once highly praised as a beacon of resistance and now reviled and stripped of honours for not condemning the type of behaviour she resisted for so long.  No doubt her apparent power is in fact severely constrained but we expect consistent behaviour, especially from our heroes.  Nearer home, the fate of the Liberal Democrats also hinged on expectations: I suspect that their power in coalition was also severely constrained and unpleasant trade-offs had to be made but expectations were high and perceived inconsistencies eventually punished.

We expect certain standards of behaviour from professionals, to whom we may trust our wealth and our health. Professional bodies exist to uphold these standards but the norms of professional behaviour are rarely framed in the context of expectations.  As far as I know, the accounting profession is the only one which has explicitly addressed the problem of unmet expectations by identifying the expectation gap between public expectations of the audit process and what auditors can actually achieve.  Some of what professionals due is aspirational: your doctor may not be able to cure you. Neither can accounting – a pertinent discussion of this can be found in McSweeney (1997).

As people have become more aware of the huge influence of corporations on our daily lives, expectations about those running such organisations have increased and the panoply of corporate governance regulation and policy has developed to address those expectations. Prescription about board behaviour is now extensive, based on the assumption that we expect board members to direct and control their companies effectively.

But do we expect too much of boards? At the time of the Cadbury Code, independent NEDs were seen as key to meeting expectations of corporate governance best practice. One significant difficulty for NEDs is the tension between the detachment required to maintain independence and the deep knowledge of company activity required to exercise oversight. Since that time, boards have become smaller and predominantly independent.  NEDs no longer meet at the boardroom table with the senior executives who manage the functional areas of the business: their contact with these people is often mediated via the remaining executives on the board who are typically only the CEO and the CFO. I’m not aware of any studies of how the information flows around the board have changed given this evolution in board composition but intuitively one might expect the ability of NEDs  to exercise their oversight role to have been challenged by the emphasis on board independence.

Useful guidance for NEDs in how to approach their role from an ethical perspective is provided by Guy Jubb’s recent paper for the Institute of Business Ethics, originally drawn to my attention by this comment. As well as raising issues for NEDs to address, the paper places financial reporting in its central role in corporate governance, a point made by John Kay as noted in earlier posts on this blog. 

Academic literature questioning the existence of any link between board independence and board performance has been around for quite a while (see for example ) and there is a an equally large literature exploring the effectiveness of NED oversight (see, for example).

But the latest data from Grant Thorntons’ annual corporate governance survey suggests perhaps that boards themselves are sceptical about the value of the UK Corporate Governance code’s current NED prescription:

“The most widespread non-compliance relates to directors’ independence. Twenty-five companies declare non-compliance with provision B.1.2, which requires that at least half of a board is made up of independent non-executive directors. Non-compliance with provision A.3.1, requiring the chair to be independent on appointment, remains the second highest area of non-compliance with 19 companies.”

The accepted wisdom on board composition is now that they should be independent and diverse but the impact of these requirements has not been properly considered. Other expectations are also coming into play: for example, the pressure on boards to engage more closely with a wider range of stakeholders. I have yet to find robust evidence that this engagement will improve board decision-making. It will certainly take up board time, and further increase expectations of what they can achieve.

Maybe it’s time to review the expectations that are being placed on these small groups of part-time directors?

McSweeney, B(1997) The unbearable ambiguity of accounting.  Accounting, Organizations and Society. 22(7) pp 691-712

Some thoughts on stakeholders

I like to start with a dictionary definition. The Oxford English Dictionary is my dictionary of choice because (a) I can reach it in a couple of clicks whereas to reach my copy of Chambers I have to stand up and lift it down from a high shelf and (b) once I start turning the pages of Chambers I’ll soon forget what I was looking for as I wander down the tempting byways of the English language and (c) I can copy and paste from the OED.

So how does the OED define stakeholder?

1. An independent person or organization with whom money is deposited, esp. when a number of people make a bet or other financial transaction.

2. A person, company, etc., with a concern or (esp. financial) interest in ensuring the success of an organization, business, system, etc.

These two types of relationship are rather different but, unless you’re a gambler, you’re probably more aware of current usage matching the second definition. The stakeholder economy, stakeholder pensions.. we’re all stakeholders, aren’t we?

I was prompted to think about this by today’s publication from the Investment Association and ICSA: the Governance Institute entitled “The Stakeholder Voice in Board Decision Making” which urges boards to engage more closely with stakeholders and offers a series of principles to guide them in doing so. It says that:

“Stakeholders are those groups which are likely to be affected by the actions of a company, or whose actions can affect the operation or business model of the company.”

While intuitive, that’s a pretty broad definition. In identifying such groups, boards will have to set some boundaries and consider in some detail the form of their interactions with stakeholders. Future generations may be affected by corporate actions, for example, with regard to environmental sustainability: how can boards take account of this. Decisions by government bodies and regulators will affect the operation of the company: these stakeholders have a very different perspective and relationship with companies from other groups.

Forty two years ago the Accounting Standards Steering Committee published a discussion paper entitled “The Corporate Report” in which it identified the user groups to which corporate reporting was addressed.

“1.9 The groups we identify as having a reasonable right to information and whose information needs should be recognised by corporate reports are:-

(a) The equity investor group including existing and potential shareholders and holders of convertible securities, options or warrants.

(b) The loan creditor group including existing and potential holders of debentures and loan stock, and providers of short term secured and unsecured loans and finance.

(c) The employee group including existing, potential and past employees.

(d) The analyst-advisor group including financial analysts and journalists, economists, statisticians, researchers, trade unions, stockbrokers and other providers of advisory services such as credit rating agencies.

(e) The business contact group including customers, trace creditors and suppliers and in a different sense competitors, business rivals ands those interested in mergers, amalgamations and takeovers.

(f) The government including tax authorities, departments and agencies concerned with the supervision of commerce and industry, and local authorities.

(g) The public including taxpayers, ratepayers, consumers and other community and special interest groups such as political parties, consumer and environmental protection societies and regional pressure groups.”

The paper proposed a series of changes and extensions to corporate reporting to address the information needs of these groups but, in spite of this and subsequent work by the Scottish Institute, the accountancy profession never really managed to make significant changes to corporate reporting to recognise the needs of these groups and, at the time, the more immediate challenge of accounting for inflation diverted everyone’s attention. This list of users has, however, become embedded in thinking about corporate reporting and it seems like a fairly comprehensive list of stakeholders for boards to think about.

But another reason why corporate reporting didn’t change to address this range of information needs was the difficulty in prioritising those needs. Financial reporting developed to address the information requirements of creditors and investors and the model we currently have, which is central to our system of corporate governance, was developed in the nineteenth century. Unsurprisingly it reinforces the view of shareholder primacy because in those days investors provided finance. Are shareholders really investors these days?

Investors are not homogenous. They may be classified in binary fashion - active/passive, owners/traders – but as a group for any company they will include a wide range of different perspectives and concerns. It is not always easy for a company to discover who its shareholders are. They don’t always want to engage with the boards of the companies in which they invest – some company secretaries have told me how difficult it can be to encourage any sort of interaction – so expecting them to exert constraint on boards in, for example, the area of executive pay may be unrealistic.

If engaging with this specific stakeholder group is challenging enough, is it reasonable to expect boards to engage with the much more diffuse group of its other stakeholders? To spend corporate resources on formalising and reporting on relationships which probably already exist in a rather amorphous way? It’s difficult to imagine any moderately successful board which doesn’t already follow the first three “core principles”.

1 Boards should identify, and keep under regular review, who they consider their key stakeholders to be and why.

2 Boards should determine which stakeholders they need to engage with directly, as opposed to relying solely on information from management.

3 When evaluating their composition and effectiveness, boards should identify what stakeholder expertise is needed in the boardroom and decide whether they have, or would benefit from, directors with directly relevant experience or understanding.

And I’m struggling to see the value of the last three.

8 In designing engagement mechanisms, companies should consider what would be most effective and convenient for the stakeholders, not just the company.

9 The board should report to its shareholders on how it has taken the impact on key stakeholders into account when making decisions.

10 The board should provide feedback to those stakeholders with whom it has

engaged, which should be tailored to the different stakeholder groups.

Corporate governance needs to be rethought by first considering the fundamental relationship between the company and its resource providers and designing an accountability system which prioritises them. Boards inevitably consider relationships with other stakeholders in the course of directing company operations but requiring them to report on such relationships broadens the scope of corporate governance in a way that can only impinge unproductively on board activity.