Archives For Scandal

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By Sarah Hathaway, head of ACCA UK

Trust: over the last year, perhaps even longer, the “T” word seems to have been everywhere, from whether we can trust the food we eat to whether we can trust our financial experts (Libor), our media (Leveson) and even our health services (The Francis Inquiry into the NHS).

The professions have a massive part to play in rebuilding and sustaining trust – that was the main outcome of a timely event I attended a couple of weeks ago, organised by ACCA for Professions for Good. Representing 1.2 million practitioners, Professions for Good is a collaboration of the bodies responsible for the entry policy, professional standards and qualifications across many of the UK’s largest professions – from accountants to lawyers. ACCA is a member, along with The Science Council, ICAEW, The Bar Council, RICS, RIBA, RAE, CMI, CIOT, AAT, CII and CIPD.

This roundtable was Chatham House, so under the Rule I am unable to attribute who said what, but it was a lively debate attended by lawyers, accountants, an MP, a journalist and a self-confessed marketing professional (myself) to look at how we can rebuild trust in the communities and society in which we live and work.

This ACCA roundtable was the final in a series of three such discussions organised for Professions For Good – The ICAEW focussed on Trust and Business, while the AAT conducted theirs about Trust and Professional Careers. Gillian Fawcett, our head of public sector, chaired our event, where we looked at a wide range of questions – from where public distrust stems, to whether there is a greater need to instil ethics through education in professional services.

The evidence is uncomfortable reading: when it comes to trust, an Ipsos MORI Poll in 2011 showed that people trusted doctors to tell the truth more than any other profession, with almost 9 out of 10 of those questioned trusting them. They were followed by teachers, professors, judges, scientists, the clergy and the police. The least trusted in the poll were politicians, with just 14 per cent believing them to tell the truth.

Edelman’s global trust barometer, now in its 13th edition, has also recently revealed that one in five respondents believes a business or governmental leader will actually tell the truth when confronted with a difficult issue. This year’s Barometer demonstrates a serious crisis of confidence in leaders of both business and government.

Aside from these findings, recent public sector scandals such as the Stafford Hospital care failures, Baby P, the phone hacking saga, MPs’ expenses and even the recent “Plebgate” story appearing in the media have all done the professions, government and other public sector bodies no favours in improving trust within the community and society.

A report presented to the Prime Minister in January 2013 from the Committee for Standards in Public Life also highlighted recent unethical – or in some cases possibly criminal – behaviour on the part of the police, the historical behaviour of the armed forces, police and Security Service in Northern Ireland, high profile problems in hospitals and care homes, the BBC, national journalists and banks. The report importantly pointed out that “the factors which influence behaviour in the public sector are likely to be very similar to those which drive high or low standards in other sectors.”

So it appears that no sector – private or public – is immune from the loss of trust; the accountancy profession itself is not immune, but I don’t think as a profession we are complacent about the future. I meet plenty of professional accountants who are working to deliver public value, which for ACCA means acting in the public interest, promoting ethical business and growing the economy. But going back to our Trust roundtable, the outcome and conclusion was all down to three simple words –  the need for accountability, transparency and openness; for me, the accountancy profession is eminently placed to deliver these three seemingly simple – but challenging – things.

And there lies the challenge for all the professions. I’d love to hear from readers what they think the professions should be delivering, and what being a professional means.

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by Ian Welch, head of policy, ACCA

So the Dodd-Frank Bill, dubbed the biggest overhaul of US financial regulation since the 1930s, has been signed into law

President Obama's political opponents are already warning that the vast 2,300 page bill will damage US competitiveness and lead to business uncertainty, given that it instructs government agencies to create hundreds of new rules and regulations and guidance notes.

It will only be possible to say whether such a huge regulatory and structural change is a success with the benefit of several years' hindsight, but there are parts that look good. The establishment of a regulator for consumer protection has to be a good thing, given the sub-prime mortgage disaster that sparked the financial crisis. While the principles of caveat emptor must always apply, groups of consumers who are new to financial products markets are entitled to expect a degree of official support.        

Similarly, the efforts to address one of the key aspects of the financial crisis – the 'too big to fail' banks – must be applauded. A re-introduction of Glass-Steagall was never going to be on the cards, given the strength of US banks lobbying, but procedures that will allow the safe dismantling and winding down of a huge bank in peril, without causing mayhem in the wider market as the fall of Lehmans did in 2008, must be a big step forward. The concept of moral hazard has to be maintained and this appears to achieve it.

Other measures such as driving more derivatives trades through public exchanges should increase transparency while the requirement for credit ratings agencies to establish internal mechanisms for determining their ratings, to use additional external sources of information and to disclose their methodologies, seems eminently sensible. The promised SEC probe into agencies which for years have suffered from an essential conflict of interest – ie rating the same institutions that pay them – will keep them on their toes.  

Of course, any huge regulatory shake-up – especially one that involves setting up new agencies and reshaping responsibilities of existing ones – suffers from the potential danger that teething bureaucratic problems will overshadow and mar what is trying to be achieved.   

It is interesting that some are comparing the current US regulatory overhaul with the Sarbanes-Oxley legislation of 2002. That Act, which followed the Enron scandal, was for years demonised by many in the West as the epitome of knee-jerk, excessive over-reaction, which cost business billions to no great purpose. Last month, it even had to survive a concerted legal effort to derail the Act by its opponents.

Yet it is now largely recognised that Sarbox, by requiring senior corporate officers to take personal responsibility for the accuracy of their firms' accounts, has led to increased accountability and transparency. And while it did not prevent the governance and ethical failures among financial institutions that was central to the financial crisis, how much worse might the situation have been without it? Sarbox, together with strict US Federal sentencing guidelines, has had an impact on executive behaviour.

A 2007 survey carried out for ACCA by CFO magazine found that among finance executives in Asia Pacific more than half found that Sarbox was useful to them in helping to establish financial disciplines, processes and internal controls. The fact that everything had to be documented and audited, far from being a burden, was seen as giving the businesses more confidence to focus on growth.

Might it be that opponents of regulatory change simply have to accept that a huge crisis will inevitably mean a major response? Certainly, bureaucratic overload must be contested – and Sarbox's requirements have probably had adverse effects on smaller-listed businesses. But crying wolf and exaggerating the threat to national competitiveness is not helpful.