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Ethics and Governance

Aoife Newton assesses the prospects for gender pay gap reporting legislation as negotiations continue to form a new government. The outgoing Government made limited progress in introducing gender pay gap reporting legislation in the Republic of Ireland, and it remains to be seen whether the next government will echo the same commitment. Two separate Bills were initiated in the Houses of the Oireachtas in the past three years. First, the Labour party initiated a private members bill titled The Human Rights and Equality Commission (Gender Pay Gap) Information Bill 2017, and this was followed by the Gender Pay Gap (Information) Bill 2019. The latter progressed to the third committee stage of the Dáil, but as with the 2017 bill, it lapsed upon the dissolution of the Dáil in January 2020. Although the timing of this legislation is unknown, the next government will be under pressure to advance such legislation. The European Parliament passed a non-binding resolution on 30 January 2020, which called on EU member states to strengthen their efforts to definitively close the gender pay gap by strictly enforcing the equal pay principle and adopting legislation increasing pay transparency. The European Commission reports that the overall gender pay gap in the European Union is 16%. In her political guidelines for 2019-2024, Commission President Ursula von der Leyen committed to addressing the gender pay gap within the framework of the upcoming Gender Equality Strategy. The Commission has previously called on member states to close the gender pay gap and address barriers to the participation of women in the labour market.  As there is an emerging consensus from the European Union to close the gender pay gap, there is, therefore, a strong possibility that the next government will introduce gender pay gap legislation to comply with the proposals outlined at a European level. Against this backdrop, employers should start preparations at an early stage. Those who fail to act will find themselves addressing issues in the public domain under the scrutiny of the media, trade unions, their employees, and their customers. Organisations reporting a high gender pay gap may be viewed as being less than fully committed to pay parity, promotion, and development opportunities for women. Where a gender pay gap exists, this may negatively impact an organisation’s brand, employee relations, public reputation, and its ability to attract and retain talent. Organisations operating within a pyramid workforce structure when it comes to gender creates a pay gap, and if such a difference is greater than that of an organisation’s peer employers, it may have some uncomfortable explaining to do to its stakeholders. The all-important narrative The size of the gender pay gap is important, but the accompanying explanation could distinguish progressive employers from those who are merely observing a compliance obligation. Under the Bill, employers would have been required to publish – concurrently with the percentage results – the reasons for such differences and whether they had taken any measures to eliminate or reduce the disparities. This requirement must be replicated in any new legislation, as the mere reporting of data could lead to a compliance complacency while defeating the spirit of the legislation. In contrast, employers who take the opportunity to analyse and explain their gender pay gap are likely to benefit from such transparency. The narrative for any gap is a particularly important opportunity for employers who have a relatively large gender pay gap. The media and the public often confuse the issues of the ‘gender pay gap’ and ‘equal pay’, even though the two are very different concepts. Employers should use their narrative to minimise the risk of confusion and take the opportunity to explain the nuances or legacy issues in their organisation, which may have led to a gender pay gap. This should encourage a level of transparency that enables employees to question and challenge reward models and packages, and employers to highlight their efforts to achieve gender pay parity.   Aoife Newton is Head of Corporate Immigration and Employment Law at KPMG Ireland.

Apr 01, 2020
Spotlight

Six influential Chartered Accountants in business and politics share their stories. Chartered Accountants are in many ways a driving force in the economy. With more than 16,000 members working in industry, and many in C-suite roles, our colleagues are found in every sector and at every level. In the pages that follow, we meet a number of trailblazing Chartered Accountants at various stages in their career. Each has had a significant influence on Ireland Inc. and continues to exemplify the very best aspects of the profession. From Sharon Cunningham, Co-Founder of Shorla Pharma to Michael Cawley, former Deputy Chief Executive at Ryanair, these profiles offer a snapshot of the talent and influence within the membership – qualities that will be in high demand in these uncertain times. Senan Murphy The CRH Group Finance Director discusses his journey from technical subject matter expert to general manager and leader. CRH Group Finance Director, Senan Murphy, divides his career into five chapters, beginning with his education and training as a Chartered Accountant and culminating in his current role. “I was interested in maths, business and science in school and did a BComm in UCD,” he recalls. “You could take a number of routes after that, but Chartered Accountancy looked the most interesting to me. I did a Diploma in Professional Accounting, which took the first three years out of the accounting exams at the time.” Senan joined Arthur Andersen in 1990 when it was one of the so-called Big 8. “I stayed there for five years and it was a very good place to work. It was a great transition from college into the real world. I moved into industry in 1995.” That saw him move to GE and begin chapter two. “Practice is a great experience, but you are an adviser. I wanted to be part of the execution and implementation; not just give advice and come back the following year to see how it worked out.” His GE career took in finance, acquisitions and business development in Europe and then the US, before moving back to Europe to what became GE Money. But the call of home was loud, and he moved back to Ireland with his wife and children in 2003 to begin the next chapter with Eddie O’Connor in Airtricity. “I stayed and helped grow the business until it was sold to SSE in 2008,” he said. That saw the beginning of chapter four with Senan moving into banking, first with RBS Ulster Bank and then Bank of Ireland. “2008 was an interesting time for the sector,” he noted with at least a hint of humour. “When something is in a crisis, you learn more than when things are going smoothly. It was a tough time for the banking industry but an interesting time to be part of it.” He sees the transition from subject matter expert to general management as quite natural for a Chartered Accountant. “The move from accountancy to financial leader to general management happens naturally. You start off learning about the financial side, but most of the job is about managing people. It’s about collaborating, working in teams and leading teams. As a financial manager, you get more and more involved in the commercial and operational sides of the business. In Airtricity, I became more and more involved in growing the business. “In some ways, it’s good to leave the numbers behind,” he continues. “As you go on, it’s about building good teams around you. The expertise around you comes from them. You become an orchestrator in a way. Accountants all start off the same way, and a lot of Chartered Accountants own their own business or end up running businesses. We don’t all stay in the financial world.” His fifth chapter sees him back in the role of Group Finance Director with CRH. “It’s a large organisation with lots of operating companies around the world. My job is to help drive performance and improve the business, but I also help to recruit, develop and promote talent globally. I also spend a fair amount of time talking to the owners of businesses. We have lots of shareholders around the world who want to hear from us.” For Senan, the people agenda is the most enjoyable. “That’s the part I enjoy most. I’m always pleasantly surprised by the people coming through the system who are more capable than their years might suggest. I also enjoy meeting shareholders. Some are supportive; some are quite challenging. Those two parts are very enjoyable.” He believes Chartered Accountancy has provided a good grounding for his career. “When you come out of college, you have to decide if you want to go into a business or go into practice and train as an accountant there. Practice is a good place to start with people of a similar age. You have to be a team player and learn to work with others. You have a number of clients and you have to build relationships with them. You’re not quite in a sales role, but you are really.” Michael Cawley Michael Cawley recalls his unorthodox path to Chartered Accountancy and life as the second in command at one of the world’s most successful airlines. With the candour we’ve come to expect from people associated with Ryanair, Michael Cawley says his reasons for becoming a Chartered Accountant were mostly materialistic. “My sister had a few boyfriends who were accountants and they had cars,” he says. “That was quite impressive, and it stuck out as most people didn’t have cars at that time.” Having never studied accountancy in school, Michael chose to pursue a commerce degree in UCC. “I liked it, and I went to Coopers & Lybrand afterwards. I spent three years auditing, and I hated it with a passion! The moment I qualified and finished my training contract, I walked out the door.” After a year teaching in UCC, he went into industry with the Cork-based motor dealer, Frank Boland. “I wanted to be in the middle of the action rather than just recording what had happened. I worked there until 1981 when I moved to Dublin to work for Kodak for five years.” His next move was to Athlone Extrusions as Managing Director. He led a management buy-out (MBO) of the company in 1990, the biggest such transaction in Irish corporate history at the time. The company later went on to a public flotation. After that, he moved back to the motor industry with Gowan Group in 1993. “I enjoyed my time there, but it was a family-owned company, so there was no prospect of a stake in the business,” he says. His move to Ryanair in 1997 as CFO and later, Deputy Chief Executive and Chief Operating Officer had its roots in the Athlone Extrusions MBO. “I worked on it with Gerry McEvoy in KPMG and Tony Ryan was one of his clients. I stayed in contact with him and he knew I had ambitions beyond the Gowan Group. I was 42 or 43 at the time and I wanted to really have a good lash at something. Ryanair was about to float at the time.” That connection led him to join the airline at a crucial stage in its history. “Incredible as it may sound, I got on with Michael O’Leary from day one. I had a good few rows with him over the years as well, of course. It was always exciting, sometimes frustrating, but I was extremely lucky to be involved. It suited me from the outset.” He describes it as a phenomenal opportunity. “Low fares were in their infancy back then. We transformed air travel across Europe. I have dealt with more than 300 airports across Europe; lots of them were a bit like Knock back then, small with a few connections. We breathed life into many communities and helped them build up tourism industries. Bergamo in Italy had 130,000 passengers when we started there; that increased to 13 million by 2014. Charleroi grew from 30,000 to 7.5 million.” He stepped down from his executive role with Ryanair in 2014. He took up several non-executive directorships with a wide range of organisations including the Gowan Group, Kingspan plc, Fáilte Ireland and, of course, Ryanair. “I was 60 and grandchildren had started to come along,” he explains. “When I joined, we had 3.5 million passengers, and when I left, we had reached 83 million. It was 142 million last year. I’m delighted to still be on the board. I’m in and out every five or six weeks to catch up, so I haven’t really left. I’ve also been lucky enough to have become involved in a number of very fine businesses.” Michael concludes by   emphasising the need to keep pace with change. “You have to be open to change. Despite the advent of artificial intelligence and so on, accountants will still be able to master their environment. But we have to stay up-to-speed and be flexible and humble about the need to change. You can be top of the pyramid today, and irrelevant in six months’ time.” Ronan Dunne Ronan Dunne, the self-declared “accidental accountant”, has taken opportunities as they arose – and to great effect. A stellar career that has seen Ronan Dunne become Executive Vice President and CEO of Verizon Consumer Group, the largest division of the world’s biggest telecoms company, could have been very different if not for a teachers’ strike back in 1981. “I was all set to do Law in UCD, but there was an examiners’ strike the year I did the Leaving Cert,” he says. “The papers couldn’t be marked and there were no college offers.” And then fate took a hand in the form of intervention by Terry O’Rourke, Managing Partner of Touche Ross, and a past pupil of his school. “He contacted the Dean and said if anyone was interested, they had three to four unfilled slots for trainee accountants. I was one of those kids who was always fascinated by finance. My dad worked for Shell in a finance role and I was always interested in it.” A phone call from the Dean and a chat with O’Rourke sealed the deal. “It sounded like an interesting opportunity, so I decided to give it a go. I am an accidental accountant.” Six years later, the newly qualified Chartered Accountant was about to experience his next encounter with fate. An injury in his final year at school had put paid to a promising rugby career, but he was also an excellent soccer player and went on to play at senior level for the Mount Merrion club in south Dublin. “We were playing in a soccer tournament in Wales, and I visited my brother in London as part of the trip. I was sitting in his apartment when my mother rang, saying a lady had called about a job interview. The job was in London so I borrowed a suit and tie from my brother, went for the interview that afternoon with BNP and by 4.30pm had a job offer. It was 1987 and the markets were on fire. They couldn’t recruit fast enough. I signed a contract, went back home and packed my bags, and returned to London three weeks later.” Rapid promotion followed, and by the age of 25 Ronan had become the chief accountant at the bank. He then switched to the banking side of the operation where he dealt mainly with major US corporates with operations in Europe. And then came a call to jump the fence. That saw him switch to senior finance and treasury roles, first with Waste Management International and then with transport and logistics group, Exel. Dunne’s next move saw him follow his former boss at Exel into BT Mobile, which was about to become O2 and de-merge from its parent. “In 2005, O2 was acquired by Telefónica and I became CEO of Telefónica UK in 2007,” he says. “That was an interesting back story. When I became CFO in 2004, my boss gave me responsibility for legal and regulation, then procurement, and then asked me to take on HR as well. After a while, I pointed out that I was doing all the heavy lifting and doing three jobs instead of one. He said I had missed the point. I clearly had the capability to be a general manager, and he was getting me ready to be a success in such a role. I still thought my future was as a big public company CFO. My boss and my chairman saw my potential before I did.” Dunne’s departure to Verizon followed a blocked sale of the business to Hutchinson in 2015. “I had decided to leave once the deal was closed. I had a fairly extensive non-compete agreement, so I had to move sector or move geography. Verizon is the largest telecoms company in the world and when I got that approach, there was no way I would turn it down. In late 2016, we headed off to New Jersey.” “My training as a Chartered Accountant has been incredibly valuable at every stage in my career,” he adds. “It really is best-in-class, and I don’t think there is a better skillset out there. In my opinion, a good Chartered Accountant is better than any MBA from any business school in the world. It’s the best business qualification out there.” And he has some advice for his fellow accountants. “The biggest challenge and opportunity for accountants is to realise that your success is measured not by what you do, but by what you can make happen and the influence you have on people. Building teams, coaching and developing them, and bringing them on a journey with you is what’s most important.” Sharon Cunningham Ambition and tenacity helped Sharon Cunningham forge a path from practice to the cutting edge of pharmaceutical innovation and entrepreneurship.   Award-winning entrepreneur, Sharon Cunningham, learned about business and accounts literally at the kitchen table. The Shorla Pharma founder was interested in business from a very early age. “Both of my parents owned companies, and it was ingrained in us from a very young age. They did the books on the kitchen table. I used to go to the accountants with my mother and was fascinated by the questions the accountant would ask. My mother was focused on things like sales and cash and had her own goals. The accountant was asking about things like profit margins, inventory management and so on.” That early inspiration led her to a degree in finance in UCC. “I wasn’t 100% sure what I was going to do when I went to college at first, but by the time I finished I knew I wanted to be a Chartered Accountant and wanted to get a training contract, preferably with one of the Big 4.” Sharon went to work with PwC in Waterford initially but soon found herself travelling to Dublin, Chicago, New York and London. “It was fun but difficult; it was lots of hard work, but it was great. I went on an international secondment to an investment fund in Manhattan. That was a great experience.” Her move to industry came about almost by chance. “At the height of the recession in December 2010, I was working on a very challenging audit. A colleague of mine got wind of a job going in a pharmaceutical company I had never heard of in Waterford. I met with the co-founders of EirGen, Tom Brennan and Patsy Carney. They are very inspirational people, and I joined the company.” Having spent seven years with the company, initially as a management accountant and later as Head of Finance, Sharon decided that it was time to start her own venture with her colleague, Orlaith Ryan. “EirGen was sold to a multinational in 2015 for $135 million in a very successful exit,” she explains. “After the takeover, the company started to change and was no longer the entrepreneurial organisation that we knew and loved. The excitement wasn’t there anymore, and both of us knew it was time to move on.” Their idea was to establish a speciality pharmaceutical company based in Clonmel, which would develop a pipeline of innovative oncology drugs for women’s and children’s cancers. “We spent two years planning Shorla at night and in our spare time, and we launched the company in January 2018,” says Cunningham. “Both of us would say that at no point were we scared. We believed in ourselves and our vision for what we wanted to do; we never thought it would fail.” That confidence was well-founded. “We don’t have billions of dollars and 20 years to wait like major pharmaceutical corporations. We are not a major corporation, nor are we a generics company. We are somewhere in between. We take existing active substances and do something novel with them. We put them to different uses and make them less toxic to the patient. The time to market is much quicker. Business is great and we are very busy. We are in the middle of multi-million euro ‘Series A’ funding round and we are growing and scaling up for the US market launch of our first product, a breast and ovarian cancer drug.” It is a bit unusual for a Chartered Accountant to set up a pharmaceutical company, she concedes. “But accountancy is a very useful skill to have in any industry. The Chartered Accountant qualification gives you a certain degree of confidence when you talk about numbers; people listen to you and don’t tend to probe too much. They accept and trust what you say. The profession as a whole has a very positive impact on society.” Sharon’s experience has taught her the value of planning. “It’s much more beneficial to work smarter, not harder,” she says. “Everyone should sit down and decide what they want to do and what they want to be, and then map out a way to get there. Don’t get bogged down in small details; don’t sweat the small stuff.” Michael McGrath Having moved from practice to politics via industry, Michael McGrath has brought his training and experience to bear in his role as Fianna Fáil’s finance spokesperson. One of the most prominent faces in politics in recent years has been that of Fianna Fáil finance spokesperson, Michael McGrath. The Cork South Central deputy has earned plaudits for his work on tracker mortgages and the regulation of so-called vulture funds, among other pressing issues. And he attributes at least part of that success to his training as a Chartered Accountant. “There is no doubt about it, the training I received as a Chartered Accountant has proven to be far more valuable than I ever thought it would,” he says. “It equipped me with the skills to get to grips with the finance portfolio. It also makes you comfortable with numbers and reaching informed decisions. The analytical skills you acquire are hugely valuable when it comes to problem-solving.” He started out on his professional and political journeys at a very young age. “I was the first member of my family to go to college when I went to study Commerce in UCC having just turned 17,” he recalls. “My first election was a contested role in the Commerce and Economics Society, and I won.” Having completed his degree in 1997, he joined KPMG in Cork. “I wanted to stay in Cork and was keen to get a professional qualification. I stayed for four years and was fortunate to work with a number of companies and organisations in a variety of sectors.” Then came the move into industry. “Following the end of the training contract, an excellent opportunity came up to join Red FM, a new start-up commercial radio station in Cork. I joined as Financial Controller in late 2001. The station had yet to go on air, and I was involved in helping set up the processes and systems to run it. It was great working for a station with a youth focus. I was reporting to the CEO and the board, and I enjoyed the diverse range of responsibilities. It was very nice having a company car as a 25-year-old, of course. I didn’t think things could get much better.” He left Red FM for a relatively short stint in the UCC finance function. “It was quite a senior role and a step up for me,” he notes. But the call of politics was loud. “I always had an interest in politics in parallel with my working life,” he explains. “I was fortunate to live in a town that still had a town council. That provided a fantastic platform for a young person to contest an election. A few hundred votes was all you needed to get elected. I ran in 1999 at the age of 22 and managed to get elected. My heart was set on politics after that.” Michael was elected to Cork County Council in 2004 and quickly realised he couldn’t continue working full-time. “I resigned from UCC in 2005 and found some part-time work to tide me through the next year and a half.” Election to the Dáil in 2007 followed. Re-election in 2011 was an altogether more difficult proposition, however. “It was an incredibly tough election. Fianna Fáil lost over 50 seats. At a time when the party vote collapsed, I managed to take the fifth and final seat. I focused on playing my part in rebuilding the party after that. Brian Lenihan passed away in June 2011, and I was appointed spokesperson on finance.” He enjoys his role as a public representative. “It is an enormous privilege to be a member of Dáil Éireann, and I still pinch myself walking in as a member. As a T.D., I am juggling a number of responsibilities. I have the finance portfolio and at a local level, I try to serve people to the best of my ability. What I get most out of it is being able to help people. Very often, people come in with difficult and sensitive issues. Sometimes they need guidance; sometimes they need someone to fight their corner.” Serving in government remains an ambition, of course. “Having spent nine years as finance spokesperson and four years involved in confidence and supply, to present a budget as Minister for Finance would naturally be an ambition,” he says. Fergal O’Dwyer Fergal O’Dwyer is one of the driving forces that helped turn DCC into the industrial powerhouse it is today. DCC is one of those quiet Irish success stories. Since its flotation in 1994, it has grown into a significant force in the energy, electronics and healthcare sectors with a substantial presence in 17 countries. From an investor perspective, the company delivered returns of nearly 7,000% up to the beginning of 2020. One constant throughout that success has been Chief Financial Officer, Fergal O’Dwyer, who joined the company in 1989 when it was still a venture capital firm. “Shortly after I joined, the company decided to change its colours and become an industrial group,” he recalls. “That required a complete transformation. We had a number of minority investments and had to decide which ones fitted in with the new strategy and which did not. Between 1990 and 1994, we spent our time moving out of some of them and moving to ownership positions in the others. I am not aware of other companies that made that strategic change.” He began his accountancy career with Craig Gardner (now PwC) almost straight out of school due to a natural aptitude. “I did maths and accountancy subjects at school and was always going to head towards finance or accountancy. I didn’t have a burning desire to be an accountant or anything, I sort of gravitated towards it.” O’Dwyer qualified as a Chartered Accountant at the age of 21 with a year or so of his training contract remaining. Ireland was in the depths of a recession at the time, and the search for opportunities took him overseas. His search took him and his wife to South Africa. “After we got married in 1983, we headed off to South Africa. I worked for three years there for Thomson McLintock, which represented KPMG at the time, and came back to PwC in 1986.” That move back led him indirectly to DCC. “I had clients who were looking for development capital, and I had worked on a number of deals on their behalf with DCC and they had worked out well for everyone. In 1989, I got a call from the founder and former CEO of DCC, Jim Flavin, who asked me to join the firm.” That was a major change. “I became an associate director of a venture capital company. I was dealing with entrepreneurs and building relationships with them. I learned about the venture capital focus on return on capital employed. That’s still the same mantra in DCC to this day. What is the return we are going to get on every euro? We aim to get a circa 15% return because we want returns well in excess of the cost of capital.” He describes the transformation from venture capitalist to industrial group as “very exciting”, but the flotation in 1994 was not without its challenges. “The flotation was a success, but we didn’t raise any capital, and our share price didn’t perform for quite a long time. We wore out a lot of shoe leather explaining our business and strategy. It has been all about constant delivery over the years, getting investors to listen and building a following. We were growing revenue, growing profits, growing cash flow, but still were having to work hard to sell the story. It was frustrating, but we had to accept that the market is always right.” His advice to other Chartered Accountants starting out on their careers is to keep learning. “The qualification equips you to do much more than just the numbers. You’ve got to interpret and advise on them. I still learn every day and you have to try to learn all the time. And you’ve got to learn from your mistakes. You can find business to be stressful, but if you put in the work and effort, it can be rewarding and fulfilling.”

Apr 01, 2020
Careers

Dr Annette Clancy lays the ground rules for a successful spell of remote working. The work restrictions and social distancing introduced by the Government in response to COVID-19 may prove to be a watershed moment for flexible/remote working. The immediate shut-down of many workplaces forced hundreds of companies and thousands of workers to get creative about how to work and deliver services to clients and customers while observing public health protocols. As many are finding out, however, working from home presents a whole new set of challenges. So, how can we make flexible/remote working work? Keep going to work Not everyone has a home office or even their own room. Yet, you must still go to work. First, acknowledge the change in your work situation. It is not the same as going to the office. You may, for example, have to juggle childcare so be realistic about what you can achieve given the current circumstances. Discuss this with your employer and work around it for the time being. Then go to work. This is as much psychological as it is physical. Your home is an obstacle course of exciting activities, which throw themselves into your path before a deadline looms. Laundry, dish-washing, reorganising books (by colour, author or topic?) all seem to take on an urgency previously unheard of as the clock ticks closer to the dreaded deadline. You must defend yourself against this distraction before you begin. Create a workspace at home. This could be as simple as defining part of the kitchen table as the place where you put your laptop, phone charger and papers. Keep this clear of all other personal items. When you sit down at this space, you are at work; when you leave, you are at home. Maintaining this boundary is essential, otherwise work and home will become blurred. This is important when you work from home because it’s easy for work to bleed into your personal (psychological and social) life and before you know it, you are on your computer at 11pm and again at 7.30am. Keep communication channels open People go to work for myriad reasons. Obviously, there is the work itself, but we also develop our sense of identity through work; we make friends and develop relationships (some life-long). These relationships can feel threatened when we are no longer close to our work colleagues. People who work at home (even those who are used to it) can feel isolated and lonely. If your business uses technology such as Slack, Google Hangouts or Skype, for example, these are probably your go-to communication tools. But if not, it’s crucial to build in times when you check-in with your colleagues by phone, text or WhatsApp – whatever method works for your group of colleagues. Managers who have no experience of managing teams remotely will need to take particular care to check-in with their people as it is easy to lose contact in a remote working context. Keep things normal Social distancing can quickly turn into social isolation unless we keep some semblance of normality. We may not be able to go to the pub on a Friday with friends or go out to dinner with colleagues, but we can organise ‘virtual coffee dates’ or ‘remote lunches’ using Skype, Zoom or Facetime. This means organising specific times to be together online, but away from work. Of course, it isn’t the same as being in the same room. And yes, it’s a bit ‘weird’. But the main point here is to maintain social contact to ensure that workers do not succumb to loneliness, and for managers to engage in non-work conversation with their colleagues. Once you crack it, we may look back on this time as the research and development phase of a new way of working. Dr Annette Clancy is Assistant Professor at UCD School of Art, History and Cultural Policy.

Apr 01, 2020
Personal Impact

As climate-related threats increasingly dominate our environment, attention is now turning to the impact on global financial stability. Mark Kennedy looks at the effect on the financial services industry and how the regulatory landscape is likely to change. On an almost daily basis, we can see the devastation climate-related events have on our world. Yet as communities battle with the catastrophic impact of storms, floods and bush fires, another threat is emerging: how to manage the risk to the global economy and financial stability. The severity of the threat to financial stability has shifted the agenda from whether central banks and regulators should act on the climate crisis to what measures ought to be put in place. While financial institutions can expect a significant increase in regulatory focus, the complexities supervisory authorities now face in monitoring the physical, liability and transition risks posed by climate-related threats creates several challenges to implementation. A global survey of 33 central banks in six regions by Mazars and the Official Monetary and Financial Institutions Forum (OMFIF) highlighted significant hurdles to developing a framework to manage and supervise climate-related risk. They include a lack of climate-risk data at firm level (Figure 1), disagreement over mandate and responsibilities, and a lack of harmonisation on green investment taxonomies.  Financial system exposures For financial firms and investors, the ability to quantify exposure to climate-related risks is vital – particularly as the regulatory dial shifts to a greener investment landscape, where the danger of holding stranded assets is a significant risk for the banking and asset management industry. This shift not only affects their capacity to generate returns, but also their ability to meet capital requirements set by regulators. For insurance companies, climate-related claims or liabilities can be managed to some extent through catastrophe bonds or other financial instruments. However, the growing number and severity of natural catastrophe events also require insurance companies to explore a broader range of tools to manage their natural catastrophe risk exposure more effectively. Failure by financial services firms and regulators to monitor and manage climate risk exposures could result in significant damage to global economies. Also, rising insurance costs and unmanageable claims, asset value destruction, and vastly reduced investment performance could impact the overall stability of the financial system. The question now is: how do we begin to manage these risks? Reaction from regulators As the Mazars report identifies, a consistent approach by regulators to supervise climate risk is still some way off. While central banks are looking to implement models, the sheer scale, speed and complexity of climate risks pose unique challenges for stress-testing and modelling. According to the report, to date, a minority of central banks and regulators surveyed are currently conducting climate-related scenario analyses in their routine stress tests (Figure 2). One barrier to implementation is the growing consensus that conventional macroeconomic models are inadequate. Instead, integrating climate risk scenario analyses into standard stress tests requires drawing from alternative techniques, such as stock-flow consistent and agent-based modelling. There’s a growing appetite for an approach that also factors in the opportunities created as the investment landscape moves from brown to green. Rewarding positive behaviour Initiatives such as the European Green Deal focus on making changes that protect the environment, as well as supporting positive societal and economic change. As investments in clean technology or sustainable projects are given a more prominent platform, there is potential for investment growth and new business opportunities to expand. By rewarding positive behaviour, such initiatives have a significant role to play in reducing the overall risk of climate-related events as societies transition to a greener way of living. Importantly, it also drives positive behaviours at firm level as it encourages the financial services industry to transition business operations towards a more sustainable economic future. Looking ahead, financial firms that embrace green investment taxonomies and promote societal improvements will help to reduce the need for market and regulatory intervention. The impact on reporting As the regulatory landscape reacts and adapts to climate-related threats, CFOs and accountancy firms will need a framework that adopts the right balance of financial and non-financial reporting requirements. While the industry can expect more stringent regulation on stress-testing and modelling specific climate-related scenarios, there is also a need to assess non-financial exposures relating to legislative or practice-led changes on environmental issues. At firm level, this may involve questions on whether a policy change is likely to impact future business strategies and firm sustainability. A standardised approach to categorising different impacts and harmonising definitions is essential. According to the Mazars’ report, “the lack of harmonised definitions is an important deterrent for establishing, in a comparable manner, which activities and sectors should be considered aligned with the goals of environmental sustainability, and therefore to assess institutions’ exposure to climate risk.”  Looking ahead As we move into an era when environmental and societal issues are connected more than ever to the business landscape, it is vital that financial institutions now collaborate and pull together with regulatory authorities and professional bodies to work towards a more sustainable future for all. As a respected global financial hub, Dublin can take the lead on moving the conversation forward and help companies explore approaches to managing climate risk. It is also an opportunity to think about long-term sustainability issues that will help to enhance shareholder value. By asking the right questions, we can begin to implement a framework that not only helps manage the impact of climate-related risk, but also emphasises the opportunities.   Mark Kennedy FCA is Managing Partner at Mazars Ireland.

Apr 01, 2020
Comment

Some of the commercial habits that are already being formed could serve us well once the COVID-19 crisis is over, writes Dr Brian Keegan.  By now, all businesses and institutions have taken some preventative and containment measures against COVID-19 for their staff, but the early adopters of social distancing won headlines and even kudos for so doing. They were the first to tell personnel to work from home, to block staff from hosting or attending large meetings or any type of gathering, and to have placed an embargo on international travel. Those early adopters had much in common. Typically they were large, multinational, and flourished in the online sales and services environment. By contrast, the indigenous SME sector often operates within a market segment where having people work from home is not practicable. The sector is now suffering the most from the collapse in demand caused by the pandemic. We have seen epidemics before, but how well did we remember the lessons of Zika virus a few years on? Or SARS? Or swine flu? How much better are we at defending ourselves? At the time, these were serious crises, but they seem to have faded from the collective memory very quickly. That may be simply because their social and economic impact was far less pronounced than that of the current scourge, but I’m not sure the reason is as straightforward as that. It may instead be because they left no lasting behavioural changes in most of the businesses and societies they affected. Societies that did remember how bad things could get were better prepared for COVID-19. Singapore is not the most open of jurisdictions, but they read the warning signs early. Also the isolation wards built there to tackle SARS in the early years of the century were still available to hold patients ill with COVID-19, and that in turn allowed the authorities to be more prescriptive about quarantining and testing. No business, nor even a country, can (or even should) sustain the kind of “just in case” procedures, buffers and Singaporean-style infrastructure to guard against once-in-a-century pandemics. This, however, is a crisis for all of us, and we should not waste an opportunity to take some insight from it. Some of the commercial habits that are already being formed could serve us well once this crisis is over. Because the situation is changing daily, I am hesitant to be too prescriptive and not all these behaviours will sustain or improve the bottom line. Nevertheless, there is already evidence that businesses are accommodating, and staff are delivering through, more flexible working practices. This is not just about working from home where that is possible, but about varied working hours, role definition and service delivery methods. In days when demand is in decline almost everywhere, the Institute sees an upswing in demand from members for resource materials and online training. This could be down to a desire to fill empty hours, or more positively, it could be down to a broader recognition that additional skills and tools are needed for future survival. Behaviour is the hardest thing to change. The reluctance to lend or borrow, an antipathy towards speculative development, overcautious economic policy and even the rise of the gig economy can be traced back to the downturn a decade ago. The legacy of the 2007/08 recession sometimes lingers less on balance sheets than it does in the collective memory. The businesses that bounce back the fastest could well be those who are the early adopters of the new business behaviours prompted by the crisis. Just like the last recession, COVID-19 is now creating memories of its own. We will need to hang on to the positive ones. Dr Brian Keegan is Director, Advocacy & Voice, at Chartered Accountants Ireland.

Apr 01, 2020
Comment

It is important, and indeed useful, to remind ourselves about the business case for gender balance, writes Rachel Hussey. A lot of the recent discussion around gender balance and its importance in business presupposes that everyone believes that working towards and achieving gender balance is a good thing and that we all know why this matters. A large body of research demonstrates that diversity is good for business. Diversity leads to better decision-making, enhances the attraction and retention of talent and, most importantly, improves the bottom line. For example, McKinsey’s recent report entitled Delivering Through Diversity shows that companies in the top quartile for gender diversity within executive boards were 21% more likely to outperform on profitability. Investors are increasingly focused on gender diversity, and Goldman Sachs in February announced that it would only underwrite IPOs in the US and Europe of private companies that have at least one diverse board member. And starting in 2021, it will raise this target to two diverse candidates for each of its IPO clients. Closer to home, the Central Bank of Ireland has called out the specific need for diversity across senior decision-making levels based on evidence of increased standards in governance practices and a more balanced risk appetite. In many industries, a large part of the challenge around achieving gender balance is the small number of women who enrol for or graduate from the degrees relevant to the industry in question. For example, engineering companies find it more difficult to recruit women because of the small percentage of women who study engineering in college, which in turn is as a result of not enough girls taking STEM subjects in school. Furthermore, in law, over 60% of graduates are women, and in 2018 there were more women on the roll of solicitors than there were men for the first time. And this trend has continued. Data published annually by the UK’s Financial Reporting Council also indicates that the numbers of men and women opting for careers in accountancy are close to or at parity in recent years. In contrast, the overall profile of the profession is closer to one-third women and two-thirds men. Anecdotal evidence suggests that the position is somewhat better in Ireland. However, a gender imbalance remains, particularly at more senior levels. This makes the retention of women in the professions a key business opportunity if employers are to harness the full value of the available talent. A key lever in professional services firms is client demand. Clients are very focused on their diversity ambitions and they expect their service providers to be as well. Firms increasingly see tender documents with questions and scoring for diversity statistics and initiatives. It is not acceptable, nor prudent, to arrive at a beauty parade with an all-male team to discuss a proposal with what is usually a diverse team on the other side. And it is not only in pitch situations. Clients – and in particular, international or global ones – now frequently include requirements around diversity in their terms of engagement. Some conduct diversity audits and evaluate the composition of teams and the numbers of hours worked by both men and women. We ultimately need to focus within professional services on representing the increasingly diverse client base that we serve. Diversity is also important from a reputational perspective. The media – and the trade press as well – have a keen focus on gender balance and new partner announcements can be the subject of criticism and comment if there is a lack of gender balance, particularly on social media. Firms that make progress in this area, and are seen to do so, will have a real competitive advantage in what is an asymmetric market. Research carried out by the 30% Club shows equally high career ambitions across men and women. However, the same study also indicates less confidence among women regarding their potential to progress. This is perhaps a topic for another article, where we might also talk about the practices a modern professional services workplace needs to attract and retain talent – all of which will be tested as we work through the current challenges posed by coronavirus.   I was very pleased to be invited to write articles in this publication on gender balance in business. Since my first article the world has experienced, and continues to experience, unprecedented change and uncertainty and that looks likely to continue for some time. Businesses will have very different priorities in the period ahead and I am writing on the basis that we will return to (perhaps a different) normal and that we can resume the discussion on issues around sustainability (including diversity) in that new normal. Rachel Hussey is Chair of 30% Club Ireland and a Partner at Arthur Cox.

Apr 01, 2020