RegulationCorporate GovernanceCorporate governance: staying ahead in accountancy

Corporate governance: staying ahead in accountancy

Simon Adcock, head of professional services for HSBC, explains how good corporate governance can help accountancy firms stay ahead of their competitors

Corporate governance: staying ahead in accountancy

Simon Adcock, head of professional services for HSBC, explains how good corporate governance can help accountancy firms stay ahead of their competitors

At a time when accountancy firms are experiencing unparalleled volatility and risk, the need for successful corporate governance has never been as important. Following government reforms announced last week, the topic of governance is firmly back in the spotlight with issues around executive pay dominating the headlines. However, while good corporate governance should rightly cover remuneration issues, such as the pay ratios between bosses and employees, it also encompasses much more.

According to the ICAEW, there are countless academic studies which conclude that well-governed companies perform better. This is particularly true in today’s rapidly changing world. We regularly see firms that have robust and appropriate governance processes in place gaining advantage over competitors because they can flex the pace of their corporate decision making to match the realities of the markets in which they operate.

On paper, good corporate governance should be second nature to accountants. After all, managing the flow of reliable information between companies and their stakeholders is a core part of the accountant’s role in helping clients do business more transparently and, in doing so, creating a trusted environment in which to trade. However, in reality we see considerable diversity in attitudes and commitment to corporate governance with some firms leading the way and while others still have much to do.

Effective governance starts at the top and empowered executive boards have become a pre-requisite for the best performing accountancy firms. These executives have a strategy that is approved by the partners, giving them a mandate to run the business and the agility to make quick decisions, with only major issues and events requiring input from all the partners.

In practice, this has led to partnerships strengthening their boards through the appointments of Non-Executive Directors (NEDs) as well as Chief Financial Officers and Chief Operating Officers from wider industries. For example, BDO recently added former BBC and Sky News business journalist Jeff Randall and strategist Russell King to its leadership team in NED roles. Commenting on the appointments, the firm’s senior partner Mark Bomer said the new independent non-executives represented the mix of experience and skill sets needed to help BDO achieve its priorities, “in a world which is changing at rapid speed”.

This is a trend we expect to continue, particularly in light of the government’s corporate governance proposals on providing workers with a voice in the boardroom. These include an option for The Financial Reporting Council to introduce a new requirement for companies to assign an NED to represent employees, paving the way for further appointments with the necessary skills to bridge the gap. However, we also expect accountancy boards to continue to take the positive steps on diversity which have seen four firms (Grant Thornton, KPMG, Deloitte and PwC) feature in the top ten of the latest Social Mobility Employer Index. While there is still much work to be done, empowered and diverse boards will only improve a firm’s ability to implement good governance.

What’s more, corporate governance also extends to transparency. Increasingly, investors, stakeholders and employees are interested in a company’s social and environmental credentials, as much as its financial performance. In a world where company data is easily available online, transparency has become a core part of corporate governance and it has a positive effect on employee retention, productivity and broader corporate loyalty.

The issue also goes beyond borders where governance has become a significant issue for firms with overseas offices. We have seen a developing trend where the international offices of some firms have been granted considerable autonomy – perhaps more than is comfortable in the current environment. Consequentially, areas such as treasury management and cyber security can be compromised. We are working with firms to reduce this operational risk and ensure full visibility and control of cash on a global basis.

Finally, it’s also worth accountants turning the corporate governance spotlight onto the banking sector and considering how the government’s requirement for large UK banks to separate retail banking activity from the rest of their business from 2019 will affect them. With firms holding significant amounts of client monies, accountants should be engaging with their banks now to understand if their accounts will be ring-fenced or not to ensure the approach is in line with their risk appetite and governance framework.

While the government’s latest corporate governance proposals bring the issue back into the spotlight, the truth is that corporate governance should always be a major focus for accountancy firms. In fact, it should be a boardroom imperative which brings a fresh perspective to performance enabling firms to successfully grow in an uncertain environment.

Simon Adcock is Head of Professional Services for HSBC

 

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