Link: Higgs’ special report
My weekend in the Swiss Alps is being spent either in the formal sessions of the World Economic Forum or in the many fringe events, talking and listening to political and business leaders from around the world.
The theme of this year’s annual meeting of world leaders is ‘Building Trust’ and is set against a backdrop of a breakdown of trust in many sectors of society including, but by no means only, or even mainly, our own industry.
It is interesting, and not a little disturbing, to be reminded of just how much trust has been destroyed by the events of the past 18 months.
For the politicians, the geo-political issues dominate. Unsurprisingly, therefore, there is huge interest in what Colin Powell, the US Secretary of State, has to say and also in the various regional sessions, most notably and inevitably, the Middle East. However, the perspectives from Asia, Latin America and Africa add a valuable additional dimension.
Overall, there is a quiet but impressive resolve to make the world a better and safer place, but there are also chilling sessions, such as ‘What if a nuclear weapon were launched’ and ‘The changing face of terrorism’, as well as the ever-present high visibility security to make sure complacency doesn’t set in.
For business leaders, restoring confidence is the overriding necessity.
Much of the discussion both in and even more outside the formal sessions is about the challenges of managing the hangover from the boom years – over capacity in many sectors, economic stagnation in many key markets, uncompleted consolidation in some industries.
And, for all, the change in the public’s view of business leaders – from hero to zero (and worse) overnight. One of the speakers encapsulates this by reproducing a cartoon from the New York Times depicting a mother separating two fighting children with the caption ‘he called me a CEO first’.
There is much discussion on corporate citizenship, on sustainable development, on socially responsible investment and on diversity.
My own contribution to the formal debate is in the other key issue for business, namely new corporate governance standards.
What is the best board structure? What is the right balance on a board between executives and independent directors? Will the US move to the UK model of separating the roles of chairman and chief executive? Is executive pay appropriately set?
What new models for remuneration should emerge? Is greater disclosure and transparency a key part of the solution? Indeed, is disclosure more effective than regulation?
What is the role for auditors and how is this effectively communicated to the public at large, so that the expectation gap is reduced; and in turn, confidence in audit is not shattered whenever a corporate failure arises, be it in the coming months or at the end of the next economic cycle?
The consensus view is that the UK has been on the right track over the past decade or more of serious and well-considered reforms. But this view was matched with a clear recognition that we all suffer from a serious, and apparently widening, expectation gap for what an audit provides.
Interestingly, many at Davos were worried about a new expectation gap that is opening up, namely what can reasonably be expected of an audit committee. I am a passionate believer in the influence for good an audit committee can have on management. And in the importance of the audit committee in being the primary interface between the company and its auditors.
But I have never for one moment thought of the audit committee as a panacea against all possible errors of judgement. However, the view at Davos is that this is fast becoming the public expectation. Alarmingly, it is difficult to find anyone not already on an audit committee who says they would agree to join one.
Worse, many are saying they would no longer consider non-executive directorships of listed companies at all. Finally, there is a sense that it is time to move on, to draw a line in the sand on the events of the past eighteen months.
But with the shadow of war hanging over the world, there is also a grim recognition that there is a long haul ahead of us.
- Peter Wyman is president of the ICAEW.