As part of its ongoing work on the global economic crisis, ACCA recently held a conference entitled Addressing the Challenges of the Global Economy.
This conference, which used electronic voting and virtual participation to assess the views of members, called for a major shake-up of regulation, the way non-executive directors (NEDs) are appointed and operate as well as a new approach to corporate governance in the financial sector.
The conclusions that came out of the debates were many and varied and offered some real solutions that could ensure that a crisis of this nature does not happen again. We have fed these back to policy makers and governments around the world. Some of the top-line conclusions were:
- NEDs in large banks have proven to be ineffective and there needs to be a new structure to ensure that they have the independence, skills and resources to exert supervision over the executive in future.
- While recognising there were mitigating factors, such as the fact that independent NEDs must rely on company information that can lead to them being misled and that the complexity of company issues and the NEDs' distance from them make it difficult to govern, their lack of understanding was not acceptable as an excuse.
- There should be co-ordinated national systems of regulation. Delegates agreed that while there are advantages to global regulation to deal with global issues, there should be national enforcement of those regulations.
- With commercial banking critical to national interest, it is important that there should be national regulation.
- Regulations should recognise uniqueness of individual countries and markets, and the different attitudes that nations have to enforcement of regulation.
- Accountants also agreed that they should take more responsibility – by being tougher on how they recognise profit.
- Regulators should continue with principles-based regulation and that banks that were seen as too big to fail, too big to challenge and too big to rescue should be left as they were but should be subject to much closer supervision.
- There should be greater connectivity and transparency between banking systems.
- The current corporate governance combined code appears to be ineffective. There is a real need and potential for a radical new approach to effectively monitor and control behaviour within the financial sector rather than to attempt to restructure the combined code, but actually achieving this will be difficult.
Participants also made a number of suggestions regarding what a new approach should look like, such as:
- executive directors should not choose their own non-executive directors
- there should be stronger consequences for not following the combined code
- there should be a change to reporting lines, which are currently too narrow
- the focus should not be only on backward-looking narrow financial data and should not focus only on short-term profit making, monitor indicators of the well-being of the company
- rewards for short-term success that put the business at risk should be reduced, and incentives should instead be used to create a long-term mindset
- 'ethical committees' should be introduced into organisations
- young people should be educated so that when they become investors they can make wise decisions and hold financial sector organisations more accountable.
As an accountancy body with members and students around the world, ACCA is in a unique position to work with others in the financial services sector to develop the network necessary to understand the financial crisis from the perspectives of governance, remuneration, regulation and accounting.
ACCA will continue to host roundtables and conferences and to lend our expertise to policy makers and governments around the world, in order to assist in finding a way out of the global financial crisis.
A full summary of the global economy debate can be found on our global economy microsite here.
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