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A new report proposes measures for the sustainability of owners’ management companies and lays the foundation for a more structured approach to managing apartment complexes or managed estates. By David Rouse In a professional audit or reporting capacity, Chartered Accountants may encounter owners’ management companies (OMC). Readers living in an apartment complex or managed estate may even have been asked to serve as an OMC director. OMCs, while in form incorporated typically as companies limited by guarantee (CLG), are in substance hybrid entities. They sit at a corporate crossroads between not-for-profit companies, property management businesses and residents’ associations (see Figure 1). Many readers will be familiar with the legacy construction and financial issues facing these companies. High-profile cases such as Priory Hall and Longboat Quay, as well as other less prominent estates, have featured in the press in recent years while corporate governance failings in OMCs receive periodic attention in court reporting. The country’s largest OMCs have multi-million euro annual service charge budgets. And yet, the stewardship of these companies is entrusted to unpaid, untrained directors (the term “volunteer director” is deliberately avoided, as in law, there is no such thing – a director is a director). There is as yet no firm handle on the number of OMCs in the country. However, it is estimated that the upper limit is likely to be about 8,000 companies. New report A recent independent report titled Owners’ Management Companies – Sustainable Apartment Living for Ireland considers issues that will be familiar to those with even a passing knowledge of managed estates and OMCs. The report was jointly commissioned by the Housing Agency and Clúid Housing. The Housing Agency works with the Department of Housing, Planning and Local Government, local authorities, and approved housing bodies (AHB) in the delivery of housing and housing services. Clúid is the State’s largest AHB, managing  just over 7,000 homes across the country. The inadequacy of annual service charges, failure to provide for building maintenance (sinking) funds, and the persistent problem of mounting debtors are just some of the topics assessed. International best practice is examined, and Ontario and New South Wales are among the comparator jurisdictions featured. The future demand for high-density housing is signalled in the context of new Government policy, such as the National Planning Framework and the Climate Action Plan. To audit or not to audit? Recommendations for reform across a range of relevant regulatory systems are proposed. Of interest to the accountancy profession will be the recommendation for the removal of the audit exemption currently available to OMCs, most of which, as noted earlier, are incorporated as CLGs. Companies Act 2014 provides the audit exemption for CLGs. In this way, small not-for-profit companies without shareholders may benefit from a reduced financial and administrative burden. (It should be noted that under sections 334 and 1218 of the Companies Act, any one member of the CLG may in effect demand an audit.) However, while OMCs are not-for-profit, they are responsible for multi-million euro property assets in the form of estate common areas. Considering the centrality of OMCs to property values, good title, and quality of living spaces, the value of an audit to members in terms of assurance, transparency, and governance cannot be overstated. Finance and governance The creditworthiness of OMCs in the context of current under-funding is also considered. Regulation over and above corporate compliance enforced by the ODCE is recommended. Dispute resolution outside of the courts is advocated, as are more cost-effective avenues for service charge debt recovery. Personal insolvency practitioners will be aware that OMC service charge debt is an “excludable debt” under the Personal Insolvency Act 2012. Only with the consent of the creditor (i.e. the OMC) may management fee balances be reduced or written off in a Personal Insolvency Arrangement. The report’s other recommendations include mandatory training for OMC directors, the standardisation of accounts to a format prescribed for OMCs, and enhanced insurance obligations. Reform may be some way off. In the meantime, practitioners should be aware that the Institute’s practice toolkit, Owners’ Management Company PQAs, was updated in 2018. This replaces the 2011 version. As the Institute’s product catalogue notes, and as may be recognised from sectoral weaknesses highlighted in this commentary, although OMCs can be small in size, they may be higher-risk clients. Future regulation of the sector could mitigate a number of the risks identified.   David Rouse FCA is an advisor with the Housing Agency, a director of the Apartment Owners’ Network CLG, and a director of one of the country’s largest OMCs.

Oct 01, 2019
Management

Three years after its commencement, Construction Contracts Act, 2013 continues to provide a pathway to cash flow in the construction sector. By Pat Breen TD This innovative and important legislation for the construction sector, which was commenced in 2016, regulates payments and particularly the timing of payments under construction contracts. While many businesses in the construction sector are aware of this legislation, some businesses may not be fully aware of the detailed statutory protections and obligations set out in the Construction Contracts Act, 2013. One of the key objectives of the legislation is to provide payment certainty for subcontractors, who were considered vulnerable in the payment cycle in the construction sector. As the construction sector continues to expand, cash flow is critical and it is cash flow that is at the core of the Construction Contracts Act, 2013. Therefore, construction businesses should ensure that their payment practices comply with the terms of this legislation. I consider that members of the accountancy profession are uniquely placed to encourage construction businesses across the country to review their payment practices to ensure that they comply with this legislation. I welcome the opportunity provided by Accountancy Ireland to highlight this legislation, and a brief summary of the main provisions of the Act is set out below. Further information on the Act is available on the website of my Department at www.dbei.gov.ie. Applicability of the Construction Contracts Act, 2013 to construction contracts The Construction Contracts Act, 2013 applies to certain construction contracts entered into after 25 July 2016, but not to all such contracts. For example, it excludes: Contracts of a value of not more than €10,000; or Contracts that relate only to a dwelling of not greater than 200 square metres where a party to such a contract occupies, or intends to occupy, the dwelling as his/her residence; or Contracts between a State authority and its partner in a public private partnership arrangement. All other construction contracts must comply with the provisions of the Act and the parties may not seek to exclude a contract from the legislation under any circumstances, whether the contract is an oral contract or a written contract. Construction contracts to which the Act applies must provide for the following contractual terms: The amount of each interim and final payment, or an adequate mechanism for determining those amounts; The payment claim date for each amount due, or an adequate mechanism for determining it; and The period between the payment claim date and the date on which the amount is due. Main contracts and subcontracts Main contractors are at liberty to agree their contractual terms with their clients, subject to adhering to the mandatory provisions required by the Act as outlined above. However, if a main contract fails to fully incorporate the mandatory provisions, then the Act imposes the applicable contractual term or terms set out in the Schedule to the Act, terms which are also applicable to subcontracts. The Act stipulates that all subcontracts must at least provide the following payment claim dates: 30 days after the commencement date of the construction contract; 30 days after the payment claim date referred to above and every 30 days thereafter up to the date of substantial completion; and 30 days after the date of final completion. The date on which payment is due in relation to an amount claimed under a subcontract shall be no later than 30 days after the payment claim date. The Act permits the parties to a subcontract to make more favourable provision for a subcontractor than the above contractual terms. Payment claims An executing party – the party which carries out the work under a construction contract – is required to submit a payment claim notice to the other party no later than five days after the relevant payment claim date. If the other party disputes the amount claimed by the executing party, that party is required to respond to the executing party in writing no later than 21 days after the payment claim date setting out the reason(s) why the amount claimed is disputed and the amount, if any, that it proposes to pay to the executing party. It may be possible for the parties to reach an agreement on the amount to be paid to the executing party. However, if no such agreement is reached by the payment due date, the other party is legally required to pay the executing party the amount, if any, which the other party proposed to pay in its response to the contested payment claim notice from the executing party. This payment shall be made no later than the payment due date in accordance with Section 4(3)(b) of the Construction Contracts Act, 2013. Statutory adjudication of payment disputes The Construction Contracts Act, 2013 also introduced, for the first time in Ireland, a statutory right to refer a payment dispute for adjudication. A ‘notice of intention’ to refer a payment dispute for adjudication must be served by one of the parties to the payment dispute. The parties may then jointly agree to appoint an adjudicator of their own choice, within a five-day period. However, if the parties cannot reach agreement on who to appoint, an application may be made after the five-day period to the Chair of the Construction Contracts Adjudication Panel, Dr Nael Bunni, to request the appointment of an adjudicator to the dispute. The appointed adjudicator, whether appointed by agreement of the parties or by the Chair, is required to reach a decision on the dispute within 28 days. This period may be extended in certain circumstances.   Pat Breen TD is Minister of State at the Department of Business, Enterprise and Innovation.

Oct 01, 2019
Management

The most successful managers and leaders help their teams learn from mistakes in an atmosphere of respect and acceptance. By Annette Clancy Your doctor tells you that you will need to undergo major surgery for a life-threatening condition. Fortunately, you have private health insurance, which will allow you to choose the hospital in which the procedure will take place. There is little difference between the hospitals apart from one issue. Of the three covered by your insurance, Hospital A reported making 100 clinical errors in the past year; Hospital B reported 75 and Hospital C reported just 20. Which hospital would you choose for your surgery? On the face of it, Hospital C seems to be the obvious choice. Fewer errors might suggest that this is a safer place in which to have surgery for a life-threatening condition. Any hospital making five times that number of mistakes must be doing something wrong, surely? Not quite. Amy Edmondson, Professor of Leadership and Management at Harvard University, started out thinking precisely that when, as a graduate student, she undertook research on medical team errors. The data initially didn’t make sense. Why would the best medical teams have the highest rate of reported errors? Edmondson studied the data in more detail to explore exactly how the teams communicated about errors. She discovered that the teams with the highest rate of reported errors were the ones that talked frequently about their mistakes in order to learn from, and reduce them. To do this, they created an atmosphere Edmondson termed “psychological safety”. Anxiety zone vs comfort zone Psychological safety can be defined as “being able to show and employ one’s self without fear of negative consequences of self-image, status or career”. In psychologically safe teams, there is a shared belief that the team is safe for interpersonal risk-taking. As a result, team members can learn from mistakes in an atmosphere of respect and acceptance. In psychologically unsafe teams (or organisations), members are afraid to speak out, particularly to authority figures who may question their credentials or status. Edmondson gives an example of a nurse who suspects that a patient may have been given the wrong dose of medicine but doesn’t call the doctor to check because the last time she did, the doctor questioned her competence.  Psychologically unsafe teams don’t speak up about errors and as a result, mistakes are made – some of which may have enormous repercussions. Edmondson cautions managers and leaders against holding employees accountable for excellence without creating psychological safety, as this creates an unhealthy anxiety zone. The opposite – creating psychological safety without accountability – creates a comfort zone, which is not high-performing. A good balance between the two is what is required, and this can be created through dialogue and discussion. Practical solutions How can team leaders and managers help to create psychological safety? Edmondson has some suggestions. Frame the work as a learning problem rather than an execution problem, thereby highlighting the uncertainty and interdependency required of the team. Frame the project as something that is new¬; as something that has not been undertaken before. No one person can deliver the project, therefore every person’s input is required. Establish that learning is an ongoing and necessary part of the project from beginning to end. Admit your fallibility as the team leader or manager. You cannot anticipate and solve all problems that will arise, and this will create safety for speaking up. The more you admit you don’t know, the more each individual on your team will be encouraged to admit their own fallibility. And finally, model curiosity. If you ask questions, you will create a culture in which others will feel safe enough to do so. Asking questions creates dialogue, and out of dialogue comes learning. Dr Annette Clancy is Assistant Professor at UCD School of Art, History and Cultural Policy. Annette’s research focuses on emotions in organisations.

Oct 01, 2019
Management

Blockchain might be the trend du jour, but it is just one part of the distributed ledger  technology revolution. I am going to be completely honest: I am not a blockchain expert. But I do have a strong interest in how blockchain technology is going to change our profession. In 2017, I joined a MeetUp group – Blockchain for Finance – to learn more about blockchain. This group hosts regular networking events throughout the year with speakers from various companies using distributed ledger technology (DLT) to create solutions for the problems and inefficiencies facing businesses today. As part of my research for this article, I spoke with two blockchain company founders to find out more about their respective companies and better understand DLT’s practical applications for businesses. QPQ QPQ is a company creating a 21st century digital financial network which, according to founder Greg Chew, promises to reduce transactional costs by automating and digitalising the transaction processes with proprietary smart legal contracts. Greg, a barrister by profession, explained that for true automation of a transaction, one must be able to govern what it does and how it does it. The ability to govern a transaction is central to what QPQ aspires to create and the company has developed its own operating governing code engine (OGCE), which will enable it to create reg-tech smart legal contracts (SLC). The OGCE will convert a contractual document into operating code (i.e. the SLC). It will also include any other items that impact on an entity’s dealings such as regulations, tax, logistics and customs, for example. Having these additional items embedded in the operating code ensures compliance throughout the transaction. Greg outlined the following example to illustrate how logistics could work using QPQ’s financial network (logistics being only part of the contractual document informing the SLC). Logistics example Imagine your company orders 100 barrels of mango concentrate from India, to be shipped to the UK. While the ship is at sea, a storm destroys 20 barrels. Using Internet of Things (IoT) technology, a signal will be broadcast to QPQ’s OGCE to inform the SLC in real-time of the accident. Before the ship arrives in the UK, at which point the accident would ordinarily be discovered, the SLC will already have determined that the following actions be taken: Contact the supplier to inform them of the accident and re-order 20 more barrels; and Instruct the shipping company to return the 20 destroyed barrels before entering the UK, thereby avoiding paying unnecessary customs duty. In this example, the additional transactional administration was removed and unnecessary costs were avoided. QPQ is conducting extensive research with accountants to ensure that its development process considers the specific requirements of different industries, sectors, geographies and regulations. To read more, visit www.qpq.io Piprate Piprate is an Irish insurtech start-up using blockchain to solve the insurance industry’s fundamental data-sharing problems. I met with Stanislav Nazarenko, co-founder and CEO, to find out more about Piprate’s plans to revolutionise the insurance industry. Stanislav, who worked in the insurance industry for several years, explained that the industry has a lack of trust between parties due to the manner in which data is shared. As a result, a significant number of processes are inefficient. For example, roughly half of a loss adjuster’s time is spent confirming the facts of an insurance claim. Piprate uses DLT to create a platform for the insurance industry, which allows all parties involved to share data in a more efficient, transparent and trustworthy way. Stanislav added that creating such a platform comes with many challenges, which DLT helps them overcome. Data will be spread around a single network (in data wallets), so no one party will have access to the entire system. In fact, parties will only have access to the data they need to perform their function (your home insurance broker doesn’t need to know if you have penalty points, for example).By having one definitive and reliable source of truth, Stanislav explained, you will enable efficiencies and as a result, insurance could become value-add for businesses and individuals alike. Consider the following examples: Insurance renewal: instead of businesses filling in various renewal forms, which are labour intensive and inefficient, Piprate’s platform will share data with multiple parties simultaneously to provide a quote much quicker; and Preventative measures: if you have a cybersecurity insurance policy and install various software programmes to mitigate the threat, this data could be shared to reduce your premium. I asked Stanislav if Piprate’s platform could lead to cheaper insurance premiums in the future. He informed me that the platform will create efficiencies and reduce operating costs – whether these savings will be passed on to customers remains to be seen. Conclusion Blockchain, or DLT, promises to make Chartered Accountants more efficient by removing the significant amount of time currently spent verifying the information provided to us. As a result, we will be able to reinvest this time to work on value-add activities for the clients and organisations we serve. Five things you need to know about blockchain It is not a cryptocurrency, it is a type of DLT The common misconception is that blockchain is a cryptocurrency. Blockchain is distributed ledger technology – the underlying technology that enables cryptocurrency to exist. There are various types of distributed ledger technology and blockchain is just one example. It gives you control of your data and has enhanced security The average consumer isn’t aware that GDPR has made them the owner of their personal data. DLT will give consumers even more control of their information and allow them to manage who has access to it. Your data will be more secure as information is stored across a network of computers instead of on one single server, making it very difficult for hackers to compromise the transaction data. In any industry where protecting sensitive data is crucial, DLT can change how critical information is shared by helping to prevent fraud and unauthorised activity. It increases efficiency and reduces costs DLT data is more reliable because the record-keeping is completed using a single digital ledger that is shared among participants. You don’t have to reconcile multiple ledgers, which enables transactions to be completed faster and more efficiently. It is more transparent and trustworthy DLT provides a verifiable and auditable history of all information stored on a dataset. All network participants share the same documentation as opposed to individual copies. That shared version can only be updated through consensus. In addition, DLT removes the need to trust third parties because now, you can trust the data. Accounting for crypto-assets Blockchain and DLT have enabled the creation of new crypto-assets (such as cryptocurrency, tokens, coins and so on), which is a constantly evolving and fast-growing area. As such, there are no specific accounting standards in place to deal with crypto-assets. This will provide a challenge for anyone preparing accounts for entities that hold crypto-assets. Michael J Walls is the Founder and CEO of Dappr and the 2018 Young Chartered Star.

Apr 01, 2019
Management

While anyone can present themselves as an expert on share valuations, integrity is the hallmark of the professional. A Picasso painting may be valued at €50 million; your house valued at €1 million. These valuations have no underlying measurement, save the willingness – through supply and demand – of interested parties to own the asset. The valuation of shares is different, however, in that there are underlying practice and measurement norms. Valuation permeates all aspects of business. It is the measure of capital value on stock markets across the world; the mainspring of wealth and its creation; and the store of value for the economic well-being of a nation. It’s your pension fund. In 2010, Chartered Accountants Ireland published The Valuation of Businesses and Shares by the author of this article. A second edition followed in 2016. Since publication, readers have enquired as to numerous aspects of valuation. This article is a stock-take of these enquiries. The hallmark of the professional valuer A major category of enquiry is share valuation related to legal wrangling of one kind or another. This includes shareholders disputes, marital separations, acquisitions or investments gone wrong, the interpretation of share rights and entitlements, and so on. Some are complicated or have poor paperwork. In my experience, the accepted practice in share valuations is poorly understood. In all circumstances – without exception – integrity (meaning objectivity, independence and impartiality) is the hallmark of the professional valuer. Regrettably, I have seen numerous instances of ‘hired gun’ valuations where the intention is to please the client by presenting an unjustifiably high or low valuation to suit the circumstances. Happily, in my experience the valuer in these circumstances has rarely been a Chartered Accountant. There are no statutory guidelines or restrictions as to presenting oneself as an expert on share valuations. Quite a few individuals and organisations present themselves as experts. Some are competent; many are not. The financial crash starkly illustrated how few investment advisers understood valuation. The nonsensical role of EBITDA Another category of enquiry relates to earnings before interest, tax, depreciation and amortisation (EBITDA). A consistent misnomer, commonly misunderstood or misdirected, is the use of EBITDA in valuations whereby valuations are based on a multiple of EBITDA. The use of EBITDA in valuations is often presented as some form of sophisticated expertise. It is, in fact, nonsensical. Please refer to my article on EBITDA in the August 2017 edition of Accountancy Ireland. For the sake of good order, should any reader feel aggrieved as to my dismissal of EBITDA, please write to me quoting even one textbook approval of EBITDA, any academic study supporting it, or indeed any evidence at all as to the validity of EBITDA as a method of valuation. I will publish it. Valuing different classes of shares A regular category of enquiry – probably the most common – relates to the valuation of different classes of shares. There are many disagreements as to which shares have what value in companies with several classes of shares. There may be different entitlements as to dividends, voting rights and/or assets on a winding up. There may be share options or loan conversion rights which, if exercised, would alter or diminish the rights of existing shareholders. Sometimes, because of restricted rights, a particular class of share is valueless or heavily discounted. The ensuing row is that this likely outcome was not understood by the investor at the outset; leading to allegations of misrepresentation. The allocation of a company’s value across different classes of shares is usually a difficult exercise. It would be better if this aspect was given proper consideration through simpler share structures in the first place. The ‘grievance’ valuation The final issue that regularly appears is the ‘grievance valuation’. An aggrieved shareholder demands that the valuation is set at an unjustifiably high level to including compensation or punishment for the alleged grievance. One or both parties in a dispute may be difficult personalities, with rational thought and reasonable behaviour proving remote in the circumstances. Familiar refrains, as expressed to the writer, include: “I have worked there for X years and you say my shares are only worth X euro”; “This was my father’s business and you are insulting him (or his memory) with this valuation”; and “John Doe is a crook and your valuation is letting him away with it.” One can only explain patiently that the valuation and the value of the grievance, if any, are separate matters. A willingness to listen and explain confirms the hallmark of the professional valuer – back to what was said about integrity at the outset of this article. Des Peelo is author of The Valuation of Businesses and Shares, 2nd edition, published by Chartered Accountants Ireland.

Apr 01, 2019
Management

If your company is considering expanding overseas, there are three critical issues to address. Expansion can be an attractive strategic option for businesses, whether mature or start-up, and there is significant motivation for both investors and businesses that are willing to accept the capital opportunities that exist. This willingness must include openness to the impact the investors can have on the business and the drive that investors may have to expand internationally, with all the change that can impose – both positive and negative. The opportunity for this strategic option is significant as, according to the Irish Venture Capital Association, over €600 million was invested by foreign venture capital firms in Irish start-ups in 2017 alone. With foreign equity capital, there is added pressure to expand into foreign markets. This can be driven by investors’ ambition to achieve economies of scale in production and sales by accessing foreign markets. It can also be driven, however, by the need and/or want of the management team to be physically closer to the new foreign investor. In selecting a start-up or business in which to deploy its capital, the foreign investor will go through the due diligence process. They will inspect the health of the business and determine the company’s projected growth, and compare it with their desired investment returns. The promises made at this point can determine whether the company should pursue international expansion to deliver the forecasted revenue growth. To deliver the anticipated capital investment returns and avoid being one of the seven-in-ten start-ups that fail due to premature scaling, according to Forbes, companies must focus on three key issues. They are: product-market fit, which is too often assumed; office expansion, which must be tied to key strategic initiatives; and cultural and operational considerations, which concern the environment and what people do in it. Product-market fit A primary consideration for a company is the identification of a market for its product or service. According to Business Leader, however, 42% of small businesses fail because there is no market for their product or service. For a business to thrive, it must first identify a problem it is uniquely positioned to solve. Product-market fit can be easy to define, but harder to physically identify. One can identify success in product-market fit when the product is delivering its value proposition to those first few customers; when the customers are promoting the product and encouraging further purchases through word-of-mouth; and when the product is selling faster than it can be distributed or shipped. As venture capitalist, Marc Andreesen, once said: “product-market fit is the only thing that matters”. Having completed the product-market fit phase, the next step is to explore, research and frame markets that appear similar to the existing customer profile. Identifying markets with similar behaviours to the existing market will contribute significantly to – or even determine – the success or failure of the expansion. It is obvious, but critical, that thorough due diligence and research into a similar market space is completed prior to any significant investment of time and capital in international expansion. Expanding teams and offices For any international expansion to be effective, there must be clarity in the strategic reasoning such as product-market fit or strategic fit, specifically in relation to human resources. The lure of acquiring new talent is very attractive and the prospect of gaining comparative advantage by leveraging skills in other markets through expansion is often a strong strategic objective. This is why Ireland remains an attractive destination for US companies seeking to expand and establish a European presence.  Indeed, Ireland is the European headquarters for some of the world’s largest technology companies including Hubspot, LogMeIn, Facebook and Google. The country’s educated and technologically perceptive labour force can facilitate growth – and that’s before you factor in the country’s effective tax laws and ready access to the single European market. Irish businesses, on the other hand, often look westward to drive increased revenue through access to the large US market, which is currently very attractive for enterprise and consumer software businesses. To facilitate the market fit, the fulfilment of factor and/or the resource needs, start-ups must focus on the people contribution. They must therefore obtain the right skills; establish a support team in the new country; and develop a centre of excellence in that area. Skills gaps in the areas of manufacturing and mass production are easier to satiate by outsourcing, in particular in non-high-tech or non-high-precision products. The aforementioned support-team approach suits companies that require a customer relationship presence without duplicating all services, and with a focus on local customer and marketing support. Customers generally prefer companies to establish a local presence as this provides the customer with clear access to the product or service provider. The third approach is to establish centres of excellence in cities with particularly strong labour forces, in order to drive the company’s research and development initiatives. Edinburgh, for example, is a burgeoning hub for artificial intelligence (AI) talent thanks in large part to the ongoing efforts of universities such as Heriot-Watt University. Scalable company culture  As a company expands its physical footprint, the day-to-day running of the organisation must evolve. The business structure will have various teams in different locations and different time zones, with potentially different perspectives on the organisation. As growing a business involves a group of people coming together to achieve a shared vision of how a product or service will impact on a market, conflict may arise in terms of people, processes, systems and structures. While trying to achieve the best product-market fit, management must also create a culture that can evolve while maintaining the organisation’s core values and purpose. For people to effectively execute their function in a growing business, individuals must have complete clarity on the reporting structure. Keeping people in specific silos can often be counter-productive when it comes to solving the hardest problems, but management must ensure that individuals are not working on too many teams simultaneously or getting stretched too thin. Likewise, the inverse is also true. Management must be alive to the prospect of redundancy between teams, leading to unclear roles and despondent employees. Communication is the key to striking the right balance, and this involves more listening than talking. Even the virtual experience of presence – using live digital feeds, for example – can connect people different locations in a meaningful way. Technology offered by Slack, Skype and others have made it easier than ever before for colleagues in different countries and time zones to communicate effectively, and thereby enabling a company to scale. Invision, for example, has a completely remote workforce. This intangible work environment and culture is built around technology and transparency, which facilitates communication and collaboration. As good as these collaborative and communication tools are, there is no real replacement for being face-to-face with a colleague or – more importantly – a customer for building relationships. 70% of communication is said to be non-verbal and a lot can get lost in translation, as technology cannot give the feel of the environment and always creates a sense of distance unless the relationship is long-term and very well-established. Businesses must therefore balance the need to combine the capitalist fact of return on investment with feeling in satisfying the needs and wants of clients and customers. It is imperative that a company with teams in different time zones works to create an environment or culture that promotes collaboration, thereby avoiding a ‘them and us’ culture. Intercom provides a good example. In the early days of expansion, Intercom installed a camera in its San Francisco office and transmitted live footage to a screen in its Dublin office to help colleagues in both locations seem that bit closer. This approach has privacy and GDPR issues attached, of course, but it can create a perception of continuous presence and connection. Ensuring that project teams, or ideally the entire company, meet regularly is key to building strong relationships that endure. It is important to budget for these off-site gatherings and while they may appear in the financial statements as a cost, the positive impact may be seen in the retention of a key client or the improved delivery of a project, for example. Alternatively, colleagues may develop a joined-up approach to land a new account while working from different sides of the world. What would that say to a prospective client about the company’s cohesion and approach to integration? Conclusion International expansion requires a thoughtful and strategic approach, ensuring that expansion is commenced for the right reasons – be it to expand the sales efforts in a different market or to capture key talent in order to gain a competitive advantage. For any expansion to be successful, the company’s structures and processes must chime with the company’s overall culture. The key to solving most expansion-related issues is the company’s mission and vision – everything should stem from this. David Andreasson is Director of Finance and Operations at Voysis. Fearghal McHugh is a Lecturer in Business Leadership and Governance at Chartered Accountants Ireland and GMIT. 

Apr 01, 2019
Strategy

Creating an ethical workplace isn't just about punishment when things go wrong – it's essential to foster an ethical outlook within the organisation. Stephanie Casey explains how to give employees the tools to deal with ethical dilemmas. When corporate scandals arise, the senior leader is often reprimanded, but the issue of ethical misconduct cannot simply be solved by firing the manager. Award-winning research from Amanda Shantz and Catherine Baily indicates that while managers are key to cultivating an ethically strong environment, organisations must invest in ‘distributed’ ethical leadership in order to ensure lasting change. In other words, they must hire and cultivate leaders at all levels who promote ethical behaviour. According to the study: “an ethically strong situation is one in which people understand events in the same way, where there is clear information about the consequences of behaving (un)ethically, and where employees have the skills and motivation to do the right thing.” By contrast: “an ethically weak situation is one in which employees respond idiosyncratically, where the appropriate ethical response is unclear, and where there are few incentives to behave ethically.” Fostering ethics So, how do managers foster ethically strong situations? Shantz and Bailey sought to address this question by conducting in-depth case studies of five organisations, as well as surveying a representative sample of over 1,300 workers, across the UK. Their research reveals some important recommendations for managers. Acknowledge ethical ambiguity Many organisations fail to discuss ethical challenges their employees may face. This drives individuals to internalise their decision-making processes with potentially negative consequences.  Instead, managers should encourage open discussion on ethical issues and possible solutions. This gives employees a clear understanding of the organisation’s ethical values and the confidence to seek support from their managers without fear of judgement. Clarify ethical trade-offs In 1950, Johnson and Johnson founder, Robert Wood Johnson, identified four stakeholder groups that he saw as vital to the success of any corporate endeavour: employees, customers, the community and shareholders. He maintained that if a company looked after the first three groups, then the shareholders would be the beneficiaries. Although the needs of all stakeholders can sometimes be met, trade-offs are usually necessary. When employees are unsure of how to manage this tension, unethical approaches can develop. In these scenarios, managers should establish a consistent ethical framework with guidelines for balancing stakeholder interests to help employees weigh up competing concerns and make appropriate decisions. Ensure role-modelling from the top down Employees pay more attention to how leaders behave than what they say about ethics. The key is for leaders to not only be ethical but to also be seen as ethical by championing ethics and values at every opportunity. It’s clear that no organisation is immune to ethical breaches, but by equipping employees to deal with daily ethical dilemmas and enabling them to raise any concerns they may have in the knowledge that they will be protected from any form of penalisation or retaliation, the next corporate scandal could be prevented. Stephanie Casey is the Programme Manager of Integrity at Work at Transparency International Ireland. Amanda Shantz will address the Integrity at Work Conference at the Radisson Blu Royal Hotel, Dublin on 20 November 2019.

Nov 10, 2019
Personal Impact

In the first of a four-part series, Kate van der Merwe considers the interplay between Finance and sustainability against a backdrop of increasingly extreme weather events. I love the sound of rain and the fresh release as it makes way for breaking sunshine (on those days that it does make way!) So it is hard to imagine the ferocious cruelty people experienced when Cyclone Idai hit Mozambique, Zimbabwe and Malawi in March, killing over 750 people, displacing far more and destroying infrastructure, livelihoods and businesses. Climate change equates to increasing frequency of such extreme weather globally and Ireland is also vulnerable to heavy rainfall frequency and sea level rises (Dublin Bay has risen at twice the global average over the last 20 years). Growing up in South Africa with an environmentally aware scientist as a father, sustainability is a familiar concept to me and one that has been brought into ever sharper focus in recent years. When I moved from Social Science to qualify as a Chartered Accountant in 2009, there seemed to be little awareness of sustainability within finance. I will investigate this intersection between finance and sustainability in a series of articles, while incorporating economic viability and social well-being. Why care? So first, should you care about climate change? As an inhabitant of this planet, whether you appreciate nature (where you holiday, how you exercise, how you unwind), believe in human rights (how climate change will impact society, particularly the young or marginalised), or are merely concerned with your own net worth (how risks, opportunities and frameworks will fundamentally shift in the future), climate change will affect you. Most will have a vague awareness of climate change at this point. It is hard not to notice Greta Thunberg’s FridaysForFuture movement (which saw over 10,000 protesters gather in Dublin on 15 March 2019), the frequent research warnings released or senior leaders speaking up on the topic. But let’s pause to ask what climate change is. Since industrialisation, population, manufacturing and consumption have significantly increased – all of which uses energy and resources, contributing to climate change. This form of growth mentality has excluded circular or design thinking, driving up greenhouse gas emissions (for example, CO2 emissions in 2011 were 150 times higher than in 1850). These greenhouse gases, when present in the upper layers of the earth’s atmosphere, exacerbate a “greenhouse effect”, whereby a barrier is created, trapping heat, causing climate change and resulting in more extreme weather patterns that are increasingly wet or dry, hot or cold. Growing urgency More than 95% of climate scientists agree that climate change is human-induced. While the first voices to warn of climate change back in the 1980s were dismissed as “tree-huggers”, the eccentric is now the denialist. Maybe the enormity of the challenge – its complexity and the global collaborative efforts required – paralysed leaders. Or perhaps the upfront costs of making fundamental systemic changes made career politicians overly cautious. However, if changes are postponed, consequences will continue to escalate with compounded costs and less successful remediation. It is commonly accepted that for businesses to thrive, they must continually innovate for the future and the future is climate change. There is an opportunity cost associated with denial or a failure to act. The UN’s 2018 IPCC report highlights the danger we face in starker terms than ever before. Impacts are stronger and unfurling quicker than previously predicted, bringing our current growth-based consumptive economy into sharp focus. Following the IPCC report, the World Wildlife Fund (WWF) released a report which found that 60% of the planet’s biodiversity has been destroyed since 1970. Considering the impact on the food sector alone, these two key facts need no narrative: The critical loss of pollinators; and More than 70% of the world’s most produced crops are reliant on pollination. This illustrates the significant ripple-effect consequences of climate change. It is not cost-beneficial. There is no opt-out option. Action is urgently needed from every pocket of society, and businesses have significant potential to be positive agents. The growing trend of both awareness and intersection with finance plays out alongside an increasing global sense of urgency. An existential threat Climate change is the single biggest challenge facing humanity. It is an existential threat, but shifting towards more sustainable alternatives will help stem the severity of climate change. Climate change is already on the agenda of major global accountancy bodies and is increasingly referenced by prominent business leaders. In February, the then-Central Bank Governor, Philip Lane, issued a warning on the dangers of delaying climate action, one of which included financial instability. Readers who have been following these developments will have noticed how the intersection between finance and sustainability has been growing rapidly. I firmly believe that this trend will increase to become a critical part of the professional role of Chartered Accountants. If my prediction is wrong, it will be the least of my concerns, as without meaningful engagement from the finance community, the challenges of climate change will not be met. Finance professionals have key roles to play in reporting critical information, directing funds, and making decisions. Over the next three issues of Accountancy Ireland, I will explore the intersection between the finance world and sustainability, beginning with an examination of our retrospective roles of reporting, including familiar areas such as Environmental, Social, and Governance (ESGs) and sustainability reporting. Thereafter I will look at emerging trends that pose a blend of risks and opportunities.   In closing, to quote Charles Tilley, Chair of IFAC Professional Accountants in Business: “‘Business as usual’ is no longer sustainable”. Kate van der Merwe ACA is responsible for Global gFA Reporting Optimisation at Google. You can also listen to Kate on the Accountancy Ireland Podcast, talking about climate change and sustainability.

Aug 01, 2019
Personal Impact

Unconscious bias isn’t going away – and neither is the pressure for diverse and inclusive workplaces, writes Dr Annette Clancy. Companies are under increasing pressure to improve gender equality, level the pay gap and generally change their approach to workplace inclusion. Part of this demand stems from equality legislation, but there is also growing public pressure to act. However, research tells us that we prefer to be in the company of people who are similar to us. We assume that we will have more in common, that we will be understood and liked, and that there will be minimal conflict. Of course, most of these assumptions are in the realm of fantasy – we all know people who are very similar to us but with whom we have fractious relationships. We also assume that the opposite will be true when it comes to people who are dissimilar to us. Consider, for example, the many stories in the US media of white people calling the police to complain about black people going about their business in their neighbourhoods. Head over heels? Freud went one step further and told us that the relationship between leaders and followers was like the act of falling in love or the state of trance between hypnotist and subject. What Freud was getting at was that we are unconsciously predisposed (in our personal and work lives) to choose people with whom we have a strong emotional attachment. At first glance, none of that makes for very good practice when it comes to increasing diversity, improving recruitment practices or searching for a new job. Hiring the most qualified candidate based on their CV and how they interview for a position seems straightforward enough, but it isn’t just what’s written down or their skills that will always convince the panel to appoint a candidate. Biases based on gender, race and other factors can present unconsciously and influence the decision, even when the panel has the best of intentions. Quick judgements Unconscious bias refers to a bias that we are unaware of and is out of our control. Our brain makes quick judgements about people and situations, and our culture, experiences and background influence these judgements. Everyone has unconscious bias and although training can increase awareness, research suggests that it has a limited effect on behaviour. One of the reasons why training is limited in its effectiveness is because the bias is ‘unconscious’. One afternoon’s worth of instruction is not going to eradicate a lifetime and a society-worth of unconscious programming. What has shown some promise is holding managers, teams and companies to account for the decisions they take. Other strategies include regular discussions on bias, making it an ordinary reflection point and not a ‘once-off’ conversation that is forgotten as soon as it happens. A good starting point for discussion is Harvard’s Project Implicit Tests, which will give you immediate feedback on your biases towards a wide range of issues. Mitigating bias Biases can affect your expectations of different groups. In hiring processes, it’s important to ask if you hold male, female or non-binary candidates to different standards. Assessing candidates ‘blind’ by concealing their name, for example, is another way in which organisations can mitigate bias. Likewise, as a jobseeker, do you have biases towards particular companies that are out of your conscious awareness and may be hindering your search? Biases can also affect how you manage your staff and may be a contributory factor as to why you retain or lose staff. Do you, for example, welcome challenges to your management style? Is it possible that you harbour different expectations of male and female staff members? How open are you to questioning your own unconscious bias? Unconscious bias isn’t going away, and neither is the pressure for diverse and inclusive workplaces. Bringing both of these topics right into the mainstream might be the first step towards having the conversation.   Dr Annette Clancy is Assistant Professor at UCD School of Art, History and Cultural Policy. Annette’s research focuses on emotions in organisations.

Aug 01, 2019
Personal Impact

Burnout is a very real problem, but organisations can ease the burden with some simple adjustments.   Stress, pressure and deadlines are part of the everyday workload of managers. But when the common feeling of stress tips over into burnout it can be a serious problem, affecting not just your own health and performance but that of your team and organisation. Some researchers say that as many as 50% of medical professionals and 85% of financial professionals have been affected by burnout. Others say that as few as 7% professionals have been seriously impacted. While researchers may disagree on the numbers, they do agree that burnout is associated with many negative physical and psychological health outcomes such as depression, sleep disturbances, anxiety, and increased alcohol and drug use. Burnout is a psychological syndrome that is characterised by a negative emotional reaction to one’s job as a consequence of extended exposure to a stressful work environment. It produces feelings of inadequacy and alienation, which affects personal and professional relationships. Stressed people think they will feel better if they can get on top of the situation, whereas burnout is associated with the belief that one’s situation will never be rectified. How to spot the signs of burnout Burnt-out colleagues are not difficult to see. Once productive and engaged, the quality of their work will decrease; they will come in late to work; interactions with colleagues will become curt; and they will become prone to illness, thus absenting themselves from the office more frequently.  How to address burnout If companies look at their role in creating workplace stress, which inevitably leads to burnout, there is every chance they can eliminate the factors that lead to burnout. Recent research suggests that there are three steps leaders can take to address burnout in organisations: Reduce excessive collaboration The endless rounds of meetings and conference calls, which aim to include every stakeholder in every decision. Very often, this type of collaboration is required by corporate cultures, yet is far beyond what is required to get the job done. Burnout is also driven by the always-on digital workplace. Switching off a personal device lays the emotional impact at the individual executive’s door rather than with the company’s policy. Call off unnecessary meetings There is huge demand for collaboration in contemporary organisations with little in the way of technology and norms to manage it. Left to their own devices, most employees will manage their time in ways that reduce stress and burnout. Companies could also challenge the assumption that collaboration (two heads are better than one) and meetings are the best way to get things done. Recent research on introverts subverts this assumption and provides alternative methods (such as breaking work tasks into individual, pair and small group tasks) to capture the creativity and talent of all organisational members. Stop overloading the most capable employees The best people in organisations, at every level, are overwhelmed by meetings, emails and interruptions. They then cannot do the job for which they have been hired because they are busy collaborating with other people. Giving people the space and time to do their job may be the most important intervention companies make to address burnout and drive success. It is a win-win for everybody. Dr Annette Clancy is an organisational consultant and also researches organisational behaviour, in particular emotion in organisations.

Dec 03, 2018
Personal Impact

Emotional intelligence and a high trust quotient are important attributes that result in more effective leadership and career success. How can you use your EQ and TQ to further your career in the New Year? A recent Harvard Business Review article, ‘What To Do If Your Career Is Stalled And You Don’t Know Why’, described how many talented executives careers stall or derail because of what they call ‘pandas’ – issues that may be perceived as innocent, but with powerful jaws that deliver a bite. The top three ‘pandas’ are executive presence, communication and peer-level relationships. Often, individuals are blissfully unaware of the existence of an issue that is blocking their progression.  As we consider our career trajectories going into 2019, it is essential that we familiarise ourselves with the story others tell about us. Having a career goal with insufficient self-awareness is like having a destination without a map of the terrain. Key areas to consider in this respect are emotional intelligence (EQ), our trust quotient (TQ) as well as our capacity to lead with agility. These concepts tie in with the most common pandas. EQ, TQ and agility Emotional intelligence relates to a set of competencies which impact how we engage with others (Table 1). There is a clear connection between these competencies and our levels of executive presence, communication skills and ability to build peer relationships.  TQ is a less commonly known dimension. It is a measure of an individual’s personal trustworthiness; a key to building good relationships. Being trustworthy and ethical may be considered a given in a profession such as accounting, however TQ is slightly different. TQ refers to how trustworthy your team, your peers or your clients find you.  Do they find you credible and reliable? Can they feel safe in trusting you with personal, confidential information and how much do we have their interest at heart versus our own interests? The higher our self-orientation, the lower our TQ.  The third element worth considering is leadership agility®. Leadership agility® is our ability to take wise and effective action amid complex, rapidly changing conditions. Many of us are trained to diagnose a situation and come up with the correct answer – that’s what experts are paid for! However, while expertise is highly valuable, sometimes we can rely on it too heavily and end up narrowing our field of vision and misdiagnosing an issue at hand. A black and white approach can lead to rigid thinking and peers, clients or team members may feel that their perspective is not considered or understood. 360 feedback If EQ, TQ and leadership agility® are areas to be navigated before creating a plan to progress your career in 2019, how can you find out what others say about you in relation to these dimensions? The most traditional way of getting such feedback is through a 360-feedback process. There are many 360 tools available in the market and all of them provide different information depending on the angle they take.  Another option worth considering is to identify some trusted individuals who have your best interests at heart and ask them a few questions: What do you consider to be my key strengths that I can use to build my career?  What could hold me back? If I were to pick one or two areas to develop, what should they be? What role/project would be an interesting next move for me, considering my strengths and areas of development? Career criteria Once you have opened up the conversation about your development, discussions about the next steps in your career will inevitably result. It’s a good time to explore what is important to you right now and in the year to come. Such considerations often include financial reward, career progression, flexibility/balance, learning experiences or meaningful work. Whether we prefer clearly defined career goals or to be opportunistic, having clarity regarding the important criteria for our careers is helpful when going into a new year.  In order for us to maximise our effectiveness and continued career success, it is important for us to understand the story others tell about us (including ‘pandas’) and reflect on the important criteria in our career. Once we have built this picture through conversations with others, we can establish the work we need to do to achieve our career aspirations through 2019 and beyond.Leadership Agility® is a registered trademark of ChangeWise. Eadine Hickey is Founder and Director at Resonate Leadership. QUESTIONS TO CONSIDER WHEN PLANNING YOUR CAREER MOVE IN 2019 As you consider your level of EQ and TQ, what do you believe are your strengths and what areas may require development? Is there a risk that you over-use your ‘expert mindset’ in certain situations and would benefit from taking a broader perspective on issues? Who could provide you with very constructive feedback on your strengths and development areas to support you in your career progression? What criteria and values are important to you as you consider your career for 2019 and beyond? Who could be of support to you in achieving your career goals (mentors, coaches, colleagues, friends)?

Dec 03, 2018
Strategy

Creating an ethical workplace isn't just about punishment when things go wrong – it's essential to foster an ethical outlook within the organisation. Stephanie Casey explains how to give employees the tools to deal with ethical dilemmas. When corporate scandals arise, the senior leader is often reprimanded, but the issue of ethical misconduct cannot simply be solved by firing the manager. Award-winning research from Amanda Shantz and Catherine Baily indicates that while managers are key to cultivating an ethically strong environment, organisations must invest in ‘distributed’ ethical leadership in order to ensure lasting change. In other words, they must hire and cultivate leaders at all levels who promote ethical behaviour. According to the study: “an ethically strong situation is one in which people understand events in the same way, where there is clear information about the consequences of behaving (un)ethically, and where employees have the skills and motivation to do the right thing.” By contrast: “an ethically weak situation is one in which employees respond idiosyncratically, where the appropriate ethical response is unclear, and where there are few incentives to behave ethically.” Fostering ethics So, how do managers foster ethically strong situations? Shantz and Bailey sought to address this question by conducting in-depth case studies of five organisations, as well as surveying a representative sample of over 1,300 workers, across the UK. Their research reveals some important recommendations for managers. Acknowledge ethical ambiguity Many organisations fail to discuss ethical challenges their employees may face. This drives individuals to internalise their decision-making processes with potentially negative consequences.  Instead, managers should encourage open discussion on ethical issues and possible solutions. This gives employees a clear understanding of the organisation’s ethical values and the confidence to seek support from their managers without fear of judgement. Clarify ethical trade-offs In 1950, Johnson and Johnson founder, Robert Wood Johnson, identified four stakeholder groups that he saw as vital to the success of any corporate endeavour: employees, customers, the community and shareholders. He maintained that if a company looked after the first three groups, then the shareholders would be the beneficiaries. Although the needs of all stakeholders can sometimes be met, trade-offs are usually necessary. When employees are unsure of how to manage this tension, unethical approaches can develop. In these scenarios, managers should establish a consistent ethical framework with guidelines for balancing stakeholder interests to help employees weigh up competing concerns and make appropriate decisions. Ensure role-modelling from the top down Employees pay more attention to how leaders behave than what they say about ethics. The key is for leaders to not only be ethical but to also be seen as ethical by championing ethics and values at every opportunity. It’s clear that no organisation is immune to ethical breaches, but by equipping employees to deal with daily ethical dilemmas and enabling them to raise any concerns they may have in the knowledge that they will be protected from any form of penalisation or retaliation, the next corporate scandal could be prevented. Stephanie Casey is the Programme Manager of Integrity at Work at Transparency International Ireland. Amanda Shantz will address the Integrity at Work Conference at the Radisson Blu Royal Hotel, Dublin on 20 November 2019.

Nov 10, 2019
Strategy

Large customers are good for business, but can stretch your cash flow.  By Peter Brady Have you recently received a ‘polite letter’ from your US multinational corporation (MNC) customer advising of a stretch in your credit terms from 30 days to 90 plus? Or, indeed, from any of your MNC customers? In recent years, the extension of MNC credit terms has become business as usual across the globe but for SMEs, it is anything but business as usual. Think about it. How would an extension of credit terms impact on your cash flow and projections this year? And what are the implications for your growth strategy in 2020 and beyond? Winning a contract with a large MNC is a measure of success for established SMEs. However, an extension of credit terms can feel like a double-edged sword as it puts excessive strain on cash flow. Why does it matter? A strain on your cash flow can have many implications, all of them negative. The first impact is on your suppliers – they expect payment in 30 days. There is an immediate gap in cash flow and you are unlikely to have sufficient sway with your suppliers to realign. This could mean: You are not in a position to fund the initial costs of fulfilling contracts; Pressure is placed on your existing supplier relationships in the form of increased risk around quality, timely delivery and higher prices; Capacity to deliver on-time to customers is affected; and Ability to grow the business at pace is limited. The lost opportunity  It may seem obvious, but having cash tied up in debtors with long credit terms is a fundamental challenge for most SMEs. If SMEs could access this cash early, it would give a distinct competitive advantage when negotiating terms with key suppliers. Think of what you could do if your invoices were paid on day one, not day 90. First, you could pay your suppliers early, enhance the relationship and ultimately secure better terms. Second, you could deploy funds into driving new customer acquisition and fund new business tenders with the comfort of cash flow certainty. So what do you do? You have two options: 1. You could try to negotiate: know where you stand in your customer’s eyes. Do your products or services play an important role in their success? Is your product or service critical to their delivery? Even so, unless you are the sole producer of a key strategic element, there’s another company out there to potentially replace you. Alternatively, your customer might offer softer credit terms in exchange for a pricing discount – but cutting margins is an extremely expensive source of finance and unlikely to be recovered. This course of action doesn’t make good business sense, as it is a race to the bottom. 2. Look at funding options to bridge the gap: the financial market is developing all the time to reflect the needs of business. For decades, when Ireland’s SMEs needed to fill the cash flow gap left by extended credit terms, they had limited choices – commercial overdrafts, short-term lending or an invoice discounting facility. That may have been adequate in the past but such is the success, ambition and global reach of Irish SMEs across all sectors today, this range of funding options falls short of their requirements. Commercial overdrafts are harder to secure and are generally seen as an unreliable method of funding, not directly aligned to the changing requirements of a business. Similarly, short-term lending is onerous to put in place and comes with significant levels of conditionality. An invoice discounting facility continues to plug the cash flow gap for many SMEs in Ireland. However, invoice discounting facilities are operationally clunky and carry significant fixed and hidden costs and limitations. They are therefore not really fit for purpose for today’s SMEs. Many SMEs often have a small number of key strategic customers in their sales mix. Supported by government bodies such as Enterprise Ireland, Ireland’s SMEs have a global footprint. Exporting is crucial to scalable business success, and not just to Western Europe. SMEs are securing contracts across the globe – US, Canada, EMEA and Asia. Invoice discounting facility For years, the invoice discounting facility has serviced working capital funding requirements. However, the facility comes with three major limitations: The facility limit; Geographical restrictions; and Debtor concentration risk limits. The facility limit At the outset, SMEs are subjected to a long and onerous process to get approval for the invoice discounting facility. Fair enough, you may say, as this is effectively a loan and it follows that the bank providing it decides how much the facility is for. SMEs must enter into a long-term commitment, often saddled with non-usage charges or exit fees. SMEs must also pay credit insurance and sign a personal guarantee – something entrepreneurs have grown to fear. Geographical restrictions Exporting to the UK? Great. Exporting to United States (US)? Not so great. Country risk and the law of the land plays a major role in how traditional lenders assess the risk and granting of facility limits. If the country in which your customer is located is outside of what is considered in banking terms to be palatable, funding limits and exclusions will apply. Debtor concentration risk limits The most common reason for restricting funding under an invoice discounting facility remains customer or debtor concentration. It applies when an SME becomes over-exposed to a single debtor. The debtor could be a large household brand name, but traditional lenders must impose facility limit restrictions. For SMEs, it is somewhat ironic that the more business you do with a key customer, the more your funding is limited. So, back to your US multinational extending its credit terms. You’ve worked tirelessly to win this business, but you can’t sustain 90 days’ credit and this customer accounts for over 60% of your debtor book. Your business needs: Consistent certainty of funding, without any limit relating to geography or debtors; Funders who recognise the strength of your business model and the substance of the underlying transactions; and Access to working capital to scale your business globally. Market and product innovation Invoice, purchase order and recurring revenue trading are collectively known as “receivables trading”. Receivables trading ticks all the boxes. It enables SMEs to leverage their customer relationships. By selling invoices and future invoices (purchase orders) to a pool of capital market funders, SMEs can access finance when they need it. What difference do capital market funders make? The funders are capital market institutional funders, pension funds, corporates and sophisticated investors – and there is a large pool of these funders. The fact that there is not just one entity, but a pool of funders purchasing the receivables (invoices or purchase orders) eliminates the requirement for imposing concentration or geographic limits on the SME. It extinguishes the need for any commitment, lock-ins or fixed costs. At no stage is there an ask for a personal guarantee. This funding solution puts control back into the hands of SMEs and allows them to decide when they need to access funding on their terms – a liberating benefit. How does it work? Receivables trading is available via an online platform. A pool of institutional funders (the buyers) are members of the platform. SMEs (the seller) uploads their invoice or purchase order and the buyers purchase them. The model is ideally suited to established SMEs with MNC or sovereign debtors. The SME can use the online platform in conjunction with their existing facility by carving out specific debtors from the invoice discounting facility. In conclusion Business is constantly changing and working capital funding has caught up. Alternative funding where sellers and buyers connect directly via an online platform is fast becoming the norm. With this funding solution, SMEs can tender for business of any scale globally – confident that they can fund the upfront costs. It’s a gamechanger for most. According to the Central Bank Survey of SMEs, which was published in January 2019, the top two reasons for credit applications were working capital, and growth and development. ISME’s quarterly business survey reveals that 70% of Ireland’s SMEs still rely solely on traditional bank funding. In Europe, it’s only 30%. Alternative funding is the future of funding. Peter Brady FCA is Co-Founder and CFO at InvoiceFair.

Oct 01, 2019
Strategy

There has never been a better time to start your own business. Let me explain why… By Michael J. Walls Lately, I have focused on how cloud technology can transform an existing business, but what if you want to start your own business? How can cloud technology help a start-up? The good news is that there has never been a better time to start your own business. As a Chartered Accountant, you only have to take look at various job sites where numerous ‘finance transformation’ roles are listed. This is a clear indication that businesses recognise the need to embrace new technology, including cloud technology and robotic process automation (RPA), if they want to maintain their competitive advantage into the future. For a budding entrepreneur setting up their own business, embracing cloud technology from the outset can give their start-up a competitive advantage over existing businesses yet to embark on a digital transformation project. Technology has tipped the scales The introduction of cloud-based technology has drastically changed the way businesses operate. Starting a new business no longer requires a significant investment in IT infrastructure such as on-site servers and telephony. Nowadays, all that is required is a laptop or mobile device, and a good internet connection. Cloud-based technology enables businesses to access the following benefits, which will give them an edge over existing competitors: Flexible working: employees with a mobile device and an internet connection can work anywhere. This widens the talent pool when recruiting employees or hiring freelancers; Collaborative: cloud-based tools enable teams to work on the same document in real-time from anywhere in the world, negating the need for multiple document versions and making the process more efficient; Business continuity: operating in the cloud means that business data is not stored on-site or on devices. If your premises or laptop are destroyed, all you need to do is pick up another laptop, log on, and continue to operate your business; Scalable: in the past, start-ups would have been at a disadvantage against larger companies with on-site IT capacity. Now, start-ups are on a level playing field without the need to invest heavily in physical IT infrastructure; and Future-proofed: with the growth of emerging technologies (such as the Internet of Things), the amount of data businesses collect and process will increase exponentially. This will require big data analytics to provide vital information on driving business development and growth. Cloud computing will make it easy to deploy the necessary applications to process big data. Cash is king, but data is queen As Chartered Accountants, we are all familiar with the phrase that ‘cash is king’. While I agree with this sentiment, in a digital age, I would add that accurate and timely data is queen when it comes to creating realistic cash flow forecasts for your business and making decisions. Businesses have traditionally used spreadsheets to manage their cash flow forecast, which can take a lot of time and effort to update and maintain, and may not be accurate or realistic. Operating in the cloud enables businesses to utilise open APIs (application programming interface) on cloud-based accounting systems to integrate bank feeds and other third-party applications. Business owners can easily integrate a cloud-based cash flow forecasting solution with their accounting system. This will ensure that the information used to create the cash flow will always be up-to-date and reliable. Some of the solutions I have used also include the following features: Dashboards: at a glance, business owners have the most pertinent information in relation to their cash flow. Data can include current and future available cash balance; upcoming receipts and payments; forecast for the next 12 weeks; or any bank reconciling items; Forecasting: this is made simple as the solution analyses the data in the accounting system to create a forecast, which can be easily adjusted; and Scenarios: various ‘what if’ scenarios can easily be created and layered over the main forecast to help with future planning (for example, an increase or decrease in sales receipts). Investment ready Start-ups that embrace cloud-based technology from the outset are more agile. This, coupled with having up-to-date information on your start-up’s performance, means that when you are ready to seek investment, you will be able to respond to due diligence queries more efficiently. This will give investors more confidence in how your business is operated and will help them make an investment decision much faster. Conclusion If you are setting up your own business, you should adopt a digital-first approach to gain a competitive advantage on existing businesses that have not yet made the move to the cloud. This will also ensure that your start-up is built for scale and future-proofed vis-à-vis emerging technologies.  Start-up tips You’ve got an idea, developed your business plan and are ready to incorporate your company. What advice would I have appreciated when I reached this stage? 1. Choose the name The Companies Registration Office (CRO) is strict about your company’s name. If it is too similar to an existing entity, the CRO may reject your application to incorporate. My advice is to check the CRO register as soon as possible and reserve the company name if it is crucial for your business. 2. Secure the domain Once your business name has been decided, assuming there are no issues with the CRO, you should purchase the domain name. There are various sites, such as godaddy.com or 101domain.com, where you can search for and purchase your company’s domain. You will note that a lot of the dot-com domain names have already been purchased by individuals seeking to make a significant return. Businesses are getting around this by using ‘wearecompany.com’ or ‘thisiscompany.com’. 3. Banking can take time Setting up traditional banking arrangements can take two to three weeks, as there are various anti-money laundering (AML) and know your customer (KYC) procedures to complete. You should have a contingency plan for taking customer payments. 4. Digital banking There are many online banking and payment solutions that are a lot more efficient to set up. For example, I was able to set up Revolut Business Banking for Dappr within 24 hours, which included the AML and KYC checks. 5. Don’t forget tax You will also need to register your company for tax. Form TR2 is relatively straightforward to complete. However, the email address to submit the form was deactivated and I had to post the completed form to Revenue. Michael J. Walls ACA is the Founder and CEO of Dappr.

Aug 01, 2019
Strategy

Blockchain represents both an end and a beginning for the accountancy profession. By Fearghal McHugh and Dr Trevor Clohessy Transparency can be considered the holy grail of governance best practice. The codes, acts and markets demand it as it enhances the view of corporate transactions, which has in turn affected issues such as environmental and sustainability reporting. Transparency is the core of blockchain, which will affect accountancy while satisfying this core principle and driver of good corporate governance. The difference is that it will not take the blockchain elements outlined below as long to become mainstream as it has taken to impact on environment and sustainability concerns. The consensus is that blockchain and its technologies will change the people skills, the processes, the systems and the structure of accounting practice currently applied to any transactions involved in the recording of any information. This has big implications for those in the sector but, significantly, gives a market opportunity to those who are not. Indeed, this opportunity is further enhanced when artificial intelligence integrates with blockchain. Scale of disruption The potential disruption is on the same scale as Amazon, which competes with all retail shops in the country. The first to market with the ‘Accountazon’ brand, named here first, will dent the current position of large or small practices. Accountazon requires accountants, but the ability to scale, integrate and generate output based on fully transparent and rules-based decision-making at the lower level of processing while, at the upper level, having the decision-making and knowledge base of a collective of highly-paid accountants will affect the accounting industry. This can drive the accounting industry to build on specialisation and value proposition offerings at a higher level than those currently generating income. In other words, intelligent computer systems will do what accountants currently do. The impact will force the industry to seek a new place away from rudimentary transaction-type roles of fundamental audit and tax processes. This will require in-depth knowledge (which artificial intelligence can replace) to pure decision-making; in essence, the better the decision-making, the higher one’s revenue and reputation. The purpose and role of accountants will remain, but will be implemented at a higher knowledge application and analysis level and further away from the current operations position and perspective. A personal approach There is no need for panic yet. As with Amazon, retail shops have continued in business but the pricing, delivery, support, convenience and speed we enjoy from the online retailer may also need to be addressed in the accountancy industry; we need to make accountancy accessible, friendly, convenient, productive and transparent. Either the market or the technology will drive the change, or the accountancy industry will embrace it first and deliver value. A Ryanair approach, encouraging a more direct business model using technology, could be applied in the accountancy industry and is more likely now with blockchain and artificial intelligence. The middleman remains the accountant, however, and if it is deemed that a lot of processes don’t add value, the middleman needs to present a value proposition that cannot be offered by the system itself in order to add future value. In the Ryanair model context, so many travel agents adjusted and seem to have found that personal service, customisation and the time taken to provide a tailored travel package for customers is what many consumers want. The drive for digitisation An example of a driver of this type of change arose earlier this year when the then-head of the IMF, Christine Lagarde, urged central banks to launch digital currencies to satisfy public policy, financial inclusion, security, consumer protection and privacy in payments. While blockchain is mostly linked with cryptocurrencies, digitisation policies embraced by companies like Nestlé, Guinness and Glanbia are being encouraged by stakeholders but embraced in a controlled manner. Blockchain technology is part of the cryptocurrency system that actually worked. It is becoming embedded in many industries from manufacturing to web-based services, facilitating faster and more secure transactions on a growing scale. When companies and consumers have a better, easier, faster and more transparent way to do business, they will select it as time is a critical factor in corporate life. The practical elements and approaches to blockchain, as highlighted below, will be seen by clients as having the potential to reduce charges and the time involved in accountant reviews and advice, which Revenue could see as a means of speeding up returns. Public versus private Blockchain is not a mobile application, a company or a cryptocurrency. In its simplest terms, blockchain is a ledger that records transactions digitally and records details about the transaction. These details are recorded in multiple places on the same network. Blockchain comes in two flavours: public and private. A public blockchain allows anybody on the network to input transactions and data onto the blockchain. No single entity controls the network. A public blockchain operates like Wikipedia in that users have a composite view that’s constantly changing. Bitcoin, the tradename used to represent the familiar digital currency along with another called Ethereum are examples of public blockchains. Private blockchains work in a similar fashion to public blockchains, but with access restrictions that control who has access to the network. One or multiple entities control the network. Think of this in terms of a traditional database system that can only be accessed by specific authorised employees. Two features differentiate blockchain digital ledgers from traditional ledgers. First, the assets and transactions recorded in these digital ledgers are secured through cryptography. As an example, in season four of the Netflix drama, Narcos, Guillermo Pallomari’s financial ledgers records are taken as evidence by the Drug Enforcement Authority (DEA). However, due to the complicated coding system deployed by Pallomari within these financial ledgers, the DEA is unable to decipher the transactions and/or assets in order to use them as evidence. Pallomari holds the encryption key, which would enable the DEA to crack the code. In terms of blockchain, this also holds true. Due to sophisticated encryption keys, the transactions and assets are secure, immutable and unforgeable. Second, blockchain encompasses the disintermediation of traditional financial intermediaries (e.g. banks, brokerages, mutual funds). This disintermediation is made possible by smart contracts, which are complex algorithms that execute the terms and conditions of a traditional contract without the need for human intervention. This leads to a superior ability to prove custodianship and ownership of assets, which could potentially improve efficiency and enhance transparency while also reducing costs and income in the accountancy profession. Complexity and novelty Today, a number of multinational technology organisations enable businesses to implement blockchain practically. For instance, Microsoft currently offers a blockchain development solution that combines the advantages of cloud computing (e.g. virtualisation, scalability, pay-as-you-go pricing model) and blockchain. This service is called Blockchain-as-a-Service (BaaS) and comes with a set of development templates (e.g. smart contract development and integration) that users can deploy and configure with minimal blockchain knowledge. However, prior to diving into the blockchain sea, accountancy organisations should adopt a caveat emptor mantra. History suggests that two dimensions impact on how a new technological trend and its business use can evolve. The first is complexity, which is represented by the level of coordination required by the organisation to produce value with the new technology. The second dimension is novelty, which describes the level of effort a user requires to understand the problems that the new technological trend can solve. The more novel a concept is, the greater the learning curve. Accountancy organisations can develop adoption strategies that map possible blockchain implementations against these two dimensions. Complexity and novelty can vary from low to high in terms of the stage of technology development. For instance, accountancy organisations that are new to the blockchain concept may want to introduce a pilot initiative that is low in novelty and low in complexity. One such initiative could encompass the inclusion of cryptocurrency transactions in a firm’s transactions processes. New skills While blockchain is spread across many systems, it is not public. It protects transactions because they are shared and copied on many parts of storage devices, and would require all parts and copies of the transaction to be amended and/or deleted to have an effect. Deleting a transaction in one place is easy, deleting it from several locations and tracking each one – while not impossible – would require some work. This capability could potentially scare some in that transactions cannot suddenly be erased, but it is encouraging for others. Apply this concept first to the level of payments and receipts and build that up to management reporting, budgets and strategic reports to ensure a higher level of accuracy and clarity. This will eventually lead to a sense of integrity, another governance ideal. With reference to speed, this can move business from reliance on past information to live analysis and if it’s faster, it will be cheaper in the long-run to produce. While a positive for business, it will not require the skill of a finance professional but a computing-finance professional. In a 2018 Irish industry report, one of the authors, Trevor Clohessy, identified that IT/education providers must do more to demystify blockchain and expedite the learning process. The report outlined how the core competencies and skills required for blockchain are broader than the core technology and encompassed skill sets, which fall under the following categories: Foundational technology (e.g. cryptography, public key architecture); Distributed ledger technology (e.g. mining, consensus algorithms); Forensics and law enforcement (e.g. money laundering, dark-net); Markets, economics and finance (e.g. business modelling, cryptonomics); Industrial design (e.g. supply chain, Internet of Things); and Regulations and standards (e.g. smart contracts, governance frameworks). From an accountancy perspective, it is envisaged that certain traditional skills relating to accountancy will be eliminated or reduced (such as reconciliations or provenance assurance, for example). Blockchain transactions will enable new value-adding activities but while the range of extant skills required will change, this change need not be Byzantine. It is envisaged that the markets and regulations categories outlined above will be important for bridging the blockchain literacy gap between various business and technology stakeholders. Looking ahead, accountancy practices can examine their business models in order to derive value from blockchain. Janus, the Roman god, contained both beginnings and endings within him. That duality characterises blockchain too. It will put an end to traditional ways of doing things and usher in a new era for business and for the world at large. It will be divisive, pervasive and transformational all at the same time, and will encourage accountancy professionals to look ahead and not base their operations and decision-making on past data. The blockchain future is one with present and predictive transacting data systems with in-built transparency and integrity.   Fearghal McHugh is a lecturer in Chartered Accountants Ireland and GMIT. Dr Trevor Clohessy is a researcher and lecturer in GMIT.

Aug 01, 2019
Strategy

While business continues to hope for the best, the prospect of a no-deal Brexit appears to be strengthening. BY MICHAEL FARRELL More than two years on from the Brexit referendum, the business community still has no clarity on the UK’s future relationship with the EU. In recent months, rising political tension in the UK has contributed to anxiety among businesses that the prospect of a no-deal Brexit appears to be strengthening. A July white paper set out the UK’s approach to economic partnership, security partnership, cross-cutting cooperation (in areas such as personal data, cooperative accords in science and innovation, and fishing opportunities) and institutional arrangements. It said that preparations for a range of possible outcomes, including a no-deal scenario, should continue and “given the short period remaining before the necessary conclusion of negotiations this autumn, the Government has agreed that preparations should be stepped up”. Within days of its publication, the white paper heightened political division in the UK Government with Prime Minister Theresa May’s difficulties compounded by amendments to the UK’s Trade Bill, which is currently making its way through Parliament. These included an amendment ruling out the UK sharing the EU’s VAT area, which could threaten the avoidance of a hard border in Ireland. At the time of writing, while much is undoubtedly going on behind the scenes, things are relatively quiet during Parliament’s summer recess. However, the Conservative Party conference at the end of September will stir tensions again and may impact the UK’s negotiating stance ahead of the next EU Council summit in October. Nothing is agreed until everything is agreed While Brexit may mean Brexit, despite the political to-ing and fro-ing, we’re none the wiser as to what Brexit will eventually mean for businesses. Currently, the draft Withdrawal Agreement between the UK and EU is 80% agreed, with a 21-month transition period envisaged whereby the UK would stay in the Single Market and Customs Union until 31 December 2020 to give businesses and administrations time to adapt. However, all we know for sure is that this could still unravel since nothing is agreed until everything is agreed. Indeed, if anything, the prospects for a no-deal outcome seem to be growing stronger. In June, the EU urged member states to step up preparations for a potential no-deal outcome while, more recently, UK Trade Secretary Liam Fox, quoted in The Sunday Times, put the odds on the chances of the UK leaving without a deal at 60/40. Meanwhile, the border between Ireland and Northern Ireland remains a major hurdle. While the UK and Ireland have both said that they will not erect a hard border, it is difficult to see how customs checks and border police can be completely avoided in a no-deal scenario. Even if a border is somehow avoided, there will be customs and border issues to overcome as EU member states will not want unregulated goods entering the single market. It is also likely that there will be customs skills shortages. Speaking after a Cabinet meeting in Derrynane, Co. Kerry in July, Taoiseach Leo Varadkar said Ireland could have to hire around 1,000 new customs and veterinary inspectors to prepare Ireland’s ports and airports for Brexit and, earlier this year, over 550 border force roles were advertised by the Home Office, including some Belfast-based roles. Worryingly, an InterTradeIreland survey of 751 businesses carried out in June/July 2018 showed that only 20% of respondents anticipate having a Brexit plan ready by March 2019. Of the businesses surveyed, 30% predicted a negative sales impact and 24% are deferring investment plans. The survey also showed that businesses face challenges in areas such as overhead costs, energy costs, new competitors and difficulties in recruiting. Where businesses have plans in place, we are beginning to see estimates of the potential cost impact of various Brexit scenarios. This is particularly true of larger businesses. Bombardier, for example, recently estimated that it would cost their Belfast plant, which operates a ‘just in time’ supply policy, around £25-30 million to hold a number of months’ worth of material to avoid stopping its lines in the event of a no-deal Brexit. Useful reading material For Chartered Accountants, an interesting paper to review is the recent publication by the Tax Strategy Group (TSG) on the taxation and customs impacts of Brexit. This notes that traders may use a customs agent for deferred payment of VAT and excise, and for assistance with customs clearance procedures. The paper points out that such services come at a cost to business. “In 2016, over 1.3 million customs declarations were submitted to Revenue by 140 agents on behalf of numerous Irish traders, whereas only 75 individual businesses submitted declarations on their own behalf. This suggests that a significant portion of third-country trade is facilitated by agents and this is also likely to be a feature of trade with the United Kingdom post-Brexit.” The TSG paper states that customs formalities on trade with “third countries” are currently managed through Revenue-approved authorised economic operators who pay duty and VAT on a monthly basis rather than at the point of import. Ireland has 144 authorised economic operators, which account for 89% of third-country imports. Revenue has identified 38,000 traders who have regular dealings with the UK and a further 100,000 who have less frequent trade. It is the larger group, with infrequent trade, that is at risk of significant changes in processes as they are less likely to have authorised economic operator status, the paper states. Other useful publications include a seven-point fact sheet setting out what businesses across the EU 27 need to do to prepare for Brexit. It warns that businesses will need to make all necessary decisions, and complete all required administrative actions, before 30 March 2019 in order to avoid disruption. It also covers responsibilities under EU law in areas such as the supply chain, certificates, licenses and authorisations, tax, rules of origin, restrictions on the import and export of goods, and the transfer of personal data. Bord Bia has published a guide for current and potential food and drink exporters, which aims to help identify operations partners, establish more efficient distribution channels and devise strategies for reducing supply chain costs. Chartered Accountants Ireland and the Institute of Chartered Accountants in England and Wales have also jointly published a guide to help businesses prepare for the post-Brexit trading environment. Dangers on the horizon As well as trading and supply change challenges, other dangers include a weaker Sterling and recruitment difficulties. Businesses in Ireland and Northern Ireland are not alone in facing skills shortages – recruitment difficulties are also being felt by employers in the UK. According to the latest quarterly Labour Market Outlook from the CIPD and the Adecco Group, labour supply is failing to keep pace with demand, exacerbated by a “supply shock” of fewer EU nationals entering the UK. The number of EU-born workers in the UK increased by 7,000 between Q1 2017 and Q1 2018, compared with an increase of 148,000 from Q1 2016 to Q1 2017. As we move into the last quarter of the year it is frustrating that, more than two years on from the referendum, there is still so much uncertainty. Chartered Accountants will be helping businesses review budgets and plans for 2019 in the coming weeks. As is always the case in uncertain times, cash and costs will need to be the focus pending greater clarity on what the future holds.   Michael Farrell FCA is Director at PKF-FPM Accountants Ltd., a service provider for InterTradeIreland’s Brexit Advisory Service.

Oct 01, 2018
Strategy

There are four distinct phases in the negotiation process, each one with its own unique pitfalls and opportunities. Negotiation is a central feature of day-to-day living. Whether it’s negotiating your fee for client services, manoeuvring through the maze emanating from the Brexit vote, or agreeing on who is responsible for cooking the dinner this evening (and cleaning up afterwards!). It’s all about negotiation. For some people, this can be a formidable challenge, so they too-readily give in to their counterpart’s arguments and demands. Thereafter, emotions of resentment and ill-feeling about a ‘lousy deal’ kick in, to the detriment of both parties. But it doesn’t have to be like that. For starters, it’s worth remembering that you are a negotiator. In fact, you’ve been negotiating since you first looked for pocket money, swapped toys or cried in the cot. That is, you’ve always engaged in purposeful persuasion and constructive compromise. While the key criteria for successful negotiations are information and power, to get the best deal, there are some unwritten rules that should be noted. First, agreement is the aim of negotiation. However, the wish of both parties to reach a mutually satisfactory conclusion does not preclude the use of threats, sanctions and associated tactics like attacks, hard words and (controlled) losses of temper. These are all part and parcel of the charade we call ‘negotiation’. Another tactic extensively deployed in consequential negotiations is the ‘off-the-record’ discussion. This is a means of probing attitudes and intentions, and smoothing the way to a settlement. In tense scenarios, this approach often enables progress when parties return to the formal negotiating arena. It is also important that each party be given an opportunity to state their (opening) position, which they will move from as negotiations proceed via alternate offers and counter-offers, eventually leading to a settlement. To enable progress, concessions made are not withdrawn. Nor are firm offers withdrawn, although it is legitimate to make and withdraw conditional offers. To smooth the process, adjournments are taken by mutual agreement, serving the purpose of reviewing progress against one’s objectives and assessing your counterpart’s objectives or latest offer or proposal. That is, adjournments provide an opportunity to update strategy. It’s also an unwritten rule that third parties are not engaged until both parties are agreed that no further progress can be made. Whatever the stakes, you’ll get the best deal if you break the negotiation process into four stages: preparing, opening, negotiating and closing. Preparing The key at the preparatory stage is to establish one’s objectives and to assign a relative priority to each one. This process also entails knowing: The ideal settlement point you would like to reach; The minimum you will accept or the maximum you’re prepared to concede; and The opening claim or offer that will help you achieve your target and provide sufficient room to manoeuvre in pursuit of your target. The difference between the ‘claim’ and the ‘offer’ is called the negotiating range. Thereafter, the good negotiator decides the ideal route or stages to be followed in moving from the opening to the closing position, and the negotiation package or items that one is prepared to trade in pursuit of his or her goal(s). In other words, at this preparatory stage you decide what needs to be achieved and how to achieve it. Good preparation also involves assembling all relevant information and structuring it in a logical manner. Identify your strengths and include facts to support your case. Support for your negotiating position may also be derived from an existing or previous agreement, comparator norms, custom and practice, previous statements from your counterpart and hard evidence. The good negotiator will also know the main weaknesses in his or her position. As one’s negotiation counterpart is likely to raise these points, prepared responses are essential. As Nelson Mandela put it when negotiating a change of regime in South Africa, “I rehearsed the arguments they might make and the ones I might put in return”. Opening The main purpose of the opening stage is to reveal the broad outline of one’s position while gathering as much information as possible about that of your counterpart. The more extreme the opening positions, the more time and effort it will take to discover if agreement is possible. To keep your negotiation partner at the table, it is advisable to open realistically before challenging their position, exploring their attitude(s), asking questions, observing behaviour and, above all, listening. This should enable assessment of their strengths and weaknesses, tactics and the extent to which they may be bluffing. One should not make concessions at this stage. Negotiating After the opening moves, the main bargaining phase begins. Now, the gap is narrowed as parties persuade the other side that their case is strong enough to force him or her to move. This negotiating stage is about exchanging – something gained for something given. Ideally, something relatively unimportant or cheap to you is traded in exchange for something that is valuable to you. This is the most intense stage of the process. The best way to avoid disaster is to lead with conditions: “if you will do this, then I will consider doing that”. Related to this, good negotiators negotiate on the whole package. By stating that nothing is agreed until everything is agreed, you refuse to allow your opponent to pick you off item by item, and you extract the maximum benefit from any potential trade-offs at the final hurdle. Closing When and how one closes negotiations is a matter of judgement and depends on the assessment of the strength of both cases. Standard techniques include: Make a concession from the package, preferably a minor one, which is traded off against an agreement to settle: “if you agree to settle at X, then we’ll concede Y”; Do a deal (e.g. split the difference, introduce something new such as extending or  shortening the settlement timescale, phased increases, making a joint declaration of intent to do something in the future such as review the deal); Summarise what has happened to date, emphasise the concessions made and the extent to which you have moved, stating that you have reached your final position. But never make a final offer unless you mean it; Apply pressure (e.g. a threat of dire consequences if your final offer isn’t accepted); and Give your opponent a choice between two courses of action: “you can have X or Y, but not X and Y”. This closing stage is a dangerous time for negotiators. If one is too keen to get agreement, it is easy to neglect the finer details of that agreement. This can cause problems when the agreement is implemented and each side has its own interpretation of what was agreed. The final agreement should therefore mean exactly what it says – that is, unless it needs to be what Henry Kissinger described as “constructively ambiguous” whereby the parties carve out spaces within which more than one interpretation is possible for the purpose of securing a deal. It should also be borne in mind that while a successful outcome is important, so too is the maintenance of the relationship between the parties. Hence, one’s negotiation ‘opponent’ can become one’s negotiation ‘partner’. This helps when problems arise at the negotiation table, as progress is more easily achieved when parties have a good relationship based on mutual respect and trust. Dr Gerry McMahon is Managing Director at Productive Personnel Ltd., a human resources consultancy and training company.

Aug 01, 2018