The world has changed since Stephen Haddrill sat down to redesign the
Financial Reporting Council in 2003.
It was six years ago and the memories of Enron and WorldCom were painfully
fresh. Accountants were under the spotlight and within government there was talk
of creating a “super-regulator” under the auspices of the largely toothless
Financial Reporting Council (FRC).
Inside the Department of Trade and Industry, Haddrill was one of a small team
of thinkers tasked with remaking the FRC.
Today, the 53-year-old is now steering the ship he built. And for those who
hoped the intervening years may have sated the life-long civil servant’s
appetite for change, prepare to be disappointed.
“Any organisation has to move with the times,” he says.
It’s almost as if during the past five years, behind his polished exterior,
ideas have been bubbling away. Waiting. Tories should rethink regulatory reform.
The UK should lobby harder in Brussels. Regulators should plan for a Big Four
failure instead of to trying to nurture another big firm. Investors need to
become stewards of their investments.
Now his ideas have a platform.
It has now been less than three weeks since Haddrill took over as chief
executive at the FRC’s fifth floor headquarters in London’s Aldwych. He arrived
on a Monday and, by the Wednesday, had already appointed a new chief operating
officer. Within two weeks, he had signed off on proposals to reform the UK’s
corporate governance code.
It was these proposals which provided for observers the first hint of the
direction of travel under Haddrill. Big Four auditors became accustomed to being
scrutinised under Haddrill’s firebrand predecessor Paul Boyle.
The possibility of the FRC overseeing a “stewardship code” between companies
and investors had some speculating that under Hadrill, the heat might be turned
down. Haddrill likes the word stewardship, which seems to sum up the relationsh
ip he’d like to see between companies and their investors.
“We need to talk more to the sovereign wealth funds, we need to talk more to
other overseas investors, the US banks and so on and encourage them to take a
stronger interest in the companies that they are either owning themselves or
companies that they are owning on behalf of their customers,” he says.
It’s an issue likely to become an early theme of his tenure and a natural fit
for a man who’s just moved on from one the UK’s largest investor groups, The
Association of British Insurers (ABI), which represents 20% of investment in the
London stock market.
Haddrill’s emergence as head of the ABI was a curious move for a man who
spent his professional life in the civil service, since 1978. At the ABI, he
once described his dealings with Whitehall “like banging your head against a
From this perch he watched as investors took short-term views, inadvertently
frittering away billions of pounds in retirement funds and nest eggs.
“People have lost very large sums of money, including some very vulnerable
people, because investment strategies were driven by short-term considerations,”
“We have to consider, what are the interests of the ultimate beneficiaries,
the ultimate investors, the pensioners who are investing in the stock market to
build up assets for their old age.”
It marks a change of direction for the FRC which kept a sharp focus on
auditors during the past four years.
In another departure from his predecessor, he does not intend to dedicate
time and effort fostering the emergence of a fifth player in the audit field
dominated by the Big Four. Together PricewaterhouseCoopers, KPMG, Deloitte and
Ernst & Young have a strangle-hold on audit and financial services markets
across the globe, to the extent where the failure of any single player could
trigger chaos in markets.
It was a bugbear of Haddrill’s predecessor who tried, and ultimately failed,
to stimulate greater competition among the firms. Haddrill believes his time
would be better spent preparing for the possibility of a Big Four collapse
rather than trying to open the door to an extra player.
“Do I believe that that increase in competition is going to be achievable in
the near term… I don’t think it is achievable in the near term and the priority
for us has to be preparation for the worst and that is where I will put my
focus,” he says.
“We have looked at the levels of competition, we have looked at the levels of
pricing and… we haven’t got an enormous amount of evidence that says we need
firm number five.”
It’s been exactly 18 days since Haddrill began with the FRC when he sits down
for this first interview.
The headlines however are not kind to him this day. This morning papers,
splayed across the FRC’s waiting room, scream, “We are in charge now, Sarkozy
tells the City”. Between the pages French President Nicolas Sarkozy gloats about
the “triumph” of his country’s economic ideas, following the appointment of
former French minister Michel Barnier to the role of European commissioner for
the internal market.
It’s a reminder to Haddrill that from now on he’s also a politician.
“Nicolas Sarkozy is celebrating what he sees as the triumph of the French model
at the moment, but it was only a year and a half ago I heard him speak at the
Guildhall when he told us how much France had to learn from the Anglo Saxon
model,” he says.
It’s brought him to another area where he wants to see change; the UK’s
lobbying power in Europe. He wants the FRC to increase its numbers in Brussels,
he wants more aggressive lobbying efforts and he wants more support from
“Sometimes public authorities in Britain come a bit too late to the game – we
only engage with Brussels when we are frightened,” he says. “We mustn’t be
afraid of Europe or step back, we must be massively engaged with it.”
During the last 12 months Westminster has been largely silent on
international regulation and accounting debates while the French have
successfully lobbied on seemingly technical issues which threaten to change the
global economic order. In October 2008, they successfully led a revolt against
the International Accounting Standards Board (IASB) which broke all its rules to
change its controversial fair value standard.
Today, the French continue to be the loudest voice of dissent on
Haddrill believes the UK has to be louder. “A number of the more technical
issues have, and will, require more input going forward,” he says. “We now have
to get engaged in some of those questions because the Brussels machine is
starting to move on them.”
He is also not afraid of voicing an opinion on moves to harmonise US and
international accounting standards. The IASB and the Financial Accounting
Standards Board (FASB) are painstakingly trying to fuse the US’s 30,000-page
accounting code with the 3,000-page book used by most countries internationally.
The IASB believes this convergence effort is the best path towards eventual
US adoption of international accounting standards. Haddrill disagrees.
“We have to work together around the goal of producing good quality
standards, it’s not just about translating American standards into an
international shape,” he says.
The FRC is also under threat on another flank. The Conservatives have
suggested they might carve up the UK’s regulatory framework, abolishing the
Financial Services Authority (FSA), handing banking supervision to the Bank of
England, creating a new consumer protection agency and fusing the remaining FSA
function with the FRC.
The move would represent a radical departure from Haddrill’s original FRC
vision. There are already fears within the profession that Haddrill, under a
Tory model, will be lumbered with responsibilities he doesn’t need and never
Haddrill won’t say whether he supports the move, but does offer a gentle
warning to the Conservatives. “The key thing is that we don’t approach this from
winners and losers among institutions and organisations, what matters is what’s
going to work for the investment community, what’s going to work for the
professions and where’s the public interest,” he says.
“The Conservatives have put forward their ideas in a very tentative way and
our understanding is that they are not going to take any hard decisions about
that before the election… That will be another one of my tests.”
Haddrill stands up to leave the interview. It’s 50 minutes short of the
one-and-a-half hours originally set aside. He apologises, but must move on and
there’s little anyone can say to stop him – he’s got work to do.
On 1 December the Financial Reporting Council released its first major public
policy initiative under new chief executive Stephen Haddrill.
Amid the recommendations in the 48-page report was the possibility of a
Stewardship Code, an initiative aimed at investing institutional shareholders
with a commitment to the long-term prosperity of their investments.
It seemed a perfect fit for Haddrill, who had spent five years at the
Association of British Insurers, one of the UK’s largest investor groups.
The FRC has already put its hand up to administer the code in line with
Haddrill’s desire to bring investors inside the walls of the FRC.
“It seems to me that the FRC has a very close and continual engagement with
the audit and accounting profession and rightly so…but the ultimate beneficiary
of the work of the FRC is the investment community,” he says.
“While our contact with the investment community has grown it seems to me that’s
an area to intensify.”
It’s a departure from his predecessor Paul Boyle’s approach, who focused
instead on promoting best practice in the accounting profession.
He said he will be in contact with sovereign wealth funds, overseas shareholders
and institutional investors, engaging them in the decision making process and
bringing them into the debate.
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