If only it were that simple. There is no doubt that governance is important, as the crises at Enron, Tyco, Worldcom and more recently Parmalat, have more than ably demonstrated. In the UK, we’re adamant that such disasters couldn’t happen here – our accounting standards and audit standards would prevent it.
This may be true, but doesn’t it miss the point?
Over the past two decades, companies have been brought to their knees and vast swathes of value have been destroyed by far less public ‘disasters’ – namely poorly planned, executed and integrated transactions.
Despite countless pieces of research showing that as many as 83% of acquisitions fail to add value, public companies continue to pursue this route to growth, very often with expensive consequences. Marconi is a good case in point.
‘Deals’ are good for the people who do them. But the process leaves behind traumatised companies and under-performing investments – the losers are far more likely to outnumber the winners in this game.
Will adherence to the various governance codes prevent this value destruction?
Not in the slightest. The catalyst for change will be a return to the basics of good business. Mergers and acquisitions must support a robust strategy, not replace it, and deals must be subject to the same rigorous scrutiny and evaluation that we would expect of all business dealings.
As accountants, we have a role to play, by making sure the valuations we produce are honest, perhaps preparing a range of values rather than one overly optimistic one.
And shouldn’t routine reporting acknowledge that companies are not just collections of expendable assets, but are living institutions containing the skills, knowledge and experience of many, many people?
- Pat Scott is co-founder, director and executive coach with Woodbridge Partners, and a non-executive director of the tax law review committee.