Comment

Investors are asking if it’s safe to invest again. Cormac Lucey explains why they might want to hold off for now “Is it safe?” That was the question asked of Dustin Hoffman in the movie “Marathon Man” as he was being interrogated while strapped into a dentist’s chair by Laurence Olivier (playing the role of an on-the-run Nazi war criminal), expertly reimagining our worst dentist nightmares. Much like Hoffman’s position, equity markets have become a nightmare. Investors keep asking themselves whether it is safe to invest again or whether this bear market has longer to run. Jeremy Grantham, the veteran investor, wrote an article on GMO.com in late August warning that the “current super-bubble features an unprecedentedly dangerous mix of cross-asset overvaluation (with bonds, housing, and stocks all critically overpriced and now rapidly losing momentum), commodity shock, and Fed hawkishness.” He concluded that we haven’t yet seen the bottom. Having pumped vast amounts of liquidity into the world economy to stave off the deflationary effects of the pandemic in 2020, central bankers were shocked by the firm inflationary response. They responded by tightening monetary policy – the usual precursor of recessions. It’s important to note that this move pre-dated the Russian invasion of Ukraine with its resultant economic disruption, and even more important to note that the conflict in Ukraine has fundamentally changed the rules of the economic game we had become used to. Zoltan Pozsar of Credit Suisse has written that, in recent decades, “the EU paid euros for cheap Russian gas, the US paid US dollars for cheap Chinese imports, and Russia and China dutifully recycled their earnings into G7 claims.” The problem is that global supply chains work only in peacetime, “but not when the world is at war,” Pozsar notes. While Russia is currently being forcibly disentangled from trade with the west, China may decide to voluntarily and slowly remove itself to avoid the shock of aggressive disentanglement should its cold war with Taiwan ever turn hot. Key monetary indicators remain recessionary. In the US, money supply is growing at a slower pace than inflation, meaning the real quantity of money in the economy is falling. The yield curve has just inverted, meaning short-term (two-year) rates of interest exceed long-term (10-year) rates. For several decades, this has been an unerringly accurate harbinger of recession. Unfortunately, central banks remain in tightening mode for those wanting equity markets to lift as inflationary pressures prove to be more than just “transitory.” They say, “Don’t fight the Fed” (the Federal Reserve) and with good reason. Caution is warranted. There are other challenges facing equities. On previous occasions over the last two decades, the depth of downturns has been eased by the fact that not all large economic blocs have been in recession at the same time. In the wake of the Global Financial Crisis, when the western world was in deep recession, strong growth in China helped ameliorate the global impact of the recession and accelerate its ending. Today, all major economic blocs are simultaneously threatened by recession, which risks making this recession deeper and longer. What might signal an equity market bottom? I’ll be looking for a combination of value, investor sentiment, and a change in central bank behaviour. Share prices would need to drop sufficiently to be reasonable value. In 2000 and 2007, this required price drops of the order of 50 percent or greater. Speculative sentiment among investors would need to be replaced by the cold fear that characterises true market bottoms and central banks would need to replace tightening with easing. A halting of central bank tightening would certainly trigger considerable euphoria. But, having been too slow to tighten, central bankers cannot risk their diminished credibility by taking their feet off the monetary brake before inflationary pressures have been well and truly suppressed. Remember: the Nasdaq crash kept deepening two decades ago, even after the Fed had started aggressively cutting interest rates. So, is it safe? I don’t think so. Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland

The absence of a global baseline for reporting sustainability-related information is a concern for many, as the number of signatories to a global call-to-action on the matter demonstrates, writes Fiona Gaskin In late August, 65 companies, investors, and professional accounting firms from around the world added their voices to the call for standard-setting efforts to more closely support a global baseline for reporting sustainability-related information. All were signatories to a statement issued jointly by the International Federation of Accountants, World Business Council for Sustainable Development, and Principles for Responsible Investment, seeking to establish greater compatibility between the concepts, terminologies, and metrics in use in current draft standards for sustainability reporting. The statement acknowledged the important work of the International Sustainability Standards Board, US Securities and Exchange Commission, and the European Commission, together with the European Financial Reporting Advisory Group, in their efforts to advance sustainability reporting. The number of organisations supporting the call for the convergence of standards demonstrates, however, that the absence of a global baseline for reporting sustainability-related information is a concern for many corporates, financial institutions, and professional services organisations. The problem is very real. When various jurisdictions and standard-setters issue concurrent, but differing, standards, the users of those standards are left with varying frameworks, which can be costly and inefficient to interpret and implement. These efforts, while well-intentioned, can create confusion by adding more noise as reporting multiplies, but with different standards and objectives. A fundamental question for those setting standards and regulations is the question of whether or not reporting should be focused on information useful to investors (i.e. the enterprise value), or information useful to a wider group of stakeholders (i.e. the impact value). Enterprise value primarily focuses on the impact of environmental, social and governance (ESG) issues on business—in other words, how does the world affect the organisation? Impact value focuses more on the impact the organisation has on the world around it. Both enterprise and impact value offer information that can help to hold companies accountable for their actions—whether that is to maintain or create value, or to minimise negative impacts on the planet and society. Indeed, it is possible to argue that there is really no practical difference between these two values, and that the exposure draft of the International Sustainability Standards Board’s general disclosure requirements standard already provides a few good examples. This is because it is reasonable to expect that a business operating in a way that has a negative impact on the planet and its people will—in the short-, medium- and long-term—have a negative impact on the business itself and, therefore, on its enterprise value. In the long run, which is where sustainability standards focus, enterprise value and impact align. We can see first-hand that the proposed range of emerging standards are already proving to be a challenge for corporates. To start, there is the difficulty in simply gaining clarity on the reporting landscape—what has to be reported on, and by when. Once this has been established, the need arises for an exercise in understanding the crossover between reporting obligations—in the area of metrics, for example. These requirements then need to be assessed against what the organisation is actually doing and reporting. This last step typically results in an action plan which requires time and resources to address the underlying actions. While the statement calling for stronger alignment of regulatory and standard-setting efforts around sustainability disclosure has wide-ranging support, those creating the regulations and standards will ultimately need to continue to collaborate and respond to the call to action. Given that we are at the infancy stage of sustainability reporting when compared to financial reporting, it would seem like such a wasted opportunity to create complexity when standardisation and transparency are what is needed. Fiona Gaskin is Environmental, Social and Governance Leader for Assurance and Reporting at PwC Ireland

The negativity directed at numerous high-profile politicians in recent months calls into question their role in governing professional conduct, but who should guard the guards themselves? asks Dr Brian Keegan There is an old saying from classical wisdom that you should only speak good of the dead, and Boris Johnson probably knows the Latin translation. Of course, the former British Prime Minister is happily anything but dead, even though his political career might be. One of the more surprising aspects of Johnson’s political demise has been the extent to which the normally moderate commentariat turned, not just on his premiership, but also on the individual. Calm reputable voices like The Economist (“he lacked the moral fibre”) and the Financial Times (“a wanton disregard for rules and for the truth”) delivered scathing editorials castigating the man and his morals to an extent typically reserved for the tabloid response to sex offenders. Ordinarily, it is the dignity of the office that protects the incumbent from the worst slings and arrows. Once their office has been lost, however, they become fair game, as Donald Trump and Nicolas Sarkozy, both former presidents of their respective countries, know well, having shared the ignominy of rigorous investigations into their conduct while in office. You do not need to hold a particularly exalted position, as the former Irish Minister of State Robert Troy will attest, to be a casualty of public concern over your actions. There can also be public unease where former office holders have used their previous positions in a manner perceived to be abusive. EU ombudsman Emily O’Reilly has called this the “revolving door of influence.” Despite all the regulation and governance guiding so many aspects of life (and Chartered Accountants are particularly sensitised to this), we don’t seem to be able to ensure good behaviour among our elected representatives, public officials and expert advisors. So, who regulates the regulators? Chartered Accountants will be familiar with the activities of the Institute’s Professional Standards department, but perhaps less so of the extent to which the Institute itself is under the scrutiny of the Irish Auditing and Accounting Supervisory Authority (IAASA), the Financial Reporting Council (FRC) and so on. Nor might they be aware of organisations such as the Monitoring Group, an international consortium of the great and the good, scrutinising the development of the auditing and ethical standards to which accountants must adhere. All of these regulators and meta-regulators are creations of the political system. The star of government regulation can fall as well as rise. The FRC is currently being reconstituted as the Audit, Reporting and Governance Authority in the UK. In Ireland, the Corporate Enforcement Authority has replaced the Office of the Director of Corporate Enforcement. In both instances, these authorities are granted additional powers and autonomy at the behest of politicians. There is also the sin of political omission. Where is the Northern Ireland Assembly to ensure that devolved regulation is appropriate to the needs of Northern Ireland? This is why there should be no sympathy for any politician caught in breach of standards or regulatory compliance. They are directly responsible for the regulatory environment in which Chartered Accountants and other financial professionals earn their living. It is intolerable that their conduct be in breach of the kind of standards they require us to observe. Another Latin tag for this, with which Boris Johnson may also be familiar, is “Quis Custodiet Ipsos Custodes?” — “Who Guards the Guards Themselves?” It cannot be left to journalists from the Financial Times, Handelsblatt, or The Economist to do the guarding. All of the negative attention garnered by politicians over the summer might not change the future behaviour of elected representatives holding a duty of care over professional conduct. Dr Brian Keegan is Director of Advocacy and Voice at Chartered Accountants Ireland

The Irish economy needs a strong pipeline of accounting talent to support both FDI and domestic business, and the Leaving Cert Accounting syllabus is key to achieving this. Pat O’Neill and Brian Feighan explain why A growing number of Leaving Cert students are choosing to study accounting, but at a time of rising demand for accountancy skills in Ireland, more must be done to encourage an even greater number of second level students to pursue a career in the profession. Figures from CareersPortal.ie show that the number of second level students studying accounting for Senior Cycle in 2021/22 was the highest it had been in a decade, revealing a 70 percent rise at higher level since 2011. Although this trend is welcome, Pat O’Neill, President of Chartered Accountants Ireland, believes that more could, and should, be done to encourage second level pupils to study accounting for the Leaving Cert at a time of significant “capacity constraints” within the profession, and to better reflect the reality of what the profession entails in today’s world. “The pipeline of new talent entering the accountancy profession is not sufficient to fill the job opportunities available and Ireland is experiencing a real shortage of professionally qualified accountants,” O’Neill said. “Our economic pillars of large foreign direct investment and successful domestic businesses require appropriate levels of accounting talent. There is a real need to encourage more young people to pursue a career in the field to help address this shortage.” Critical shortage Accountants are on the Critical Skills Occupations List, compiled by the Department of Enterprise for professions experiencing a shortage of qualifications, experience or skills required for the proper functioning of the economy. The Northern Ireland Executive has also listed accountancy as an in-demand skill in Northern Ireland. “At a time when the Government is looking to address the vulnerability of tax revenues amid a slowdown in the global economy, it is perhaps surprising that there was not a greater focus in Budget 2023 on addressing some of the structural issues here at home, which are potentially undermining Ireland’s attractiveness as a continued location for foreign direct investment,” Pat O’Neill said. “Among these issues are the availability of suitable rental accommodation for workers and the availability of appropriately skilled staff to support such inward investment.” The key skill sets required to address the latter lie in accounting and finance, O’Neill said. “New multinational operations establishing a base here need appropriate in-house finance functions and capacity in professional services firms to support their transactional and regulatory compliance needs,” he said. “In addition, we have a significant and vibrant shared services sector in Ireland, which operates in many instances with a focus broader than pure transactional activity. Many of the organisations in the sector here operate EMEA or global centres of excellence, already employing large numbers and contributing significantly to the corporate tax base. Clearly, we have to look at growing the ‘funnel’ of entry into the accountancy profession.” Fit for purpose A “fundamentally important” part of addressing the shortage of accountancy skills in Ireland will be ensuring that the Leaving Cert Accounting syllabus is modernised for developments since the 1990s when it was first introduced, O’Neill said. “It is imperative that the syllabus is made fit for purpose in the 21st century and that it introduces young people to the breadth of the modern accountant’s role, engages them, and ignites interest in the subject as a career choice for school leavers. Otherwise, some students may be deterred from a career in accounting, and we won’t have the bench-strength to support businesses on this island,” he said. Chartered Accountants Ireland is a member of the Consultative Committee of Accountancy Bodies-Ireland (CCAB-I), which last year made a submission on this matter to the Department of Education, including the findings of its review of the current Leaving Certificate Accounting syllabus. “Subjects taken at Senior Cycle play a key role in influencing the third-level and career choices of students, so Senior Cycle Accounting offers a unique opportunity to engage, inspire and offer a career pathway, not just to the next generation of accountancy professionals, but to anyone with an interest in finance or enterprise,” said Brian Feighan, FCA, Chair of the CCAB-I Working Group for Promoting the Profession, and founder and CEO of LearnAltus, a provider of financial and executive education solutions. “Ireland needs a strong pipeline of talented students who are keen to progress their studies and careers in accountancy, through both apprenticeship routes and third-level pathways. It is essential that the Leaving Cert Accounting curriculum and examinations reflect the skills of the modern accountant and inspire the next generation of accountancy professionals, entrepreneurs and business leaders,” he said. Language of business Accountancy is the “language of business”, Feighan added, and financial literacy and financial competence are key drivers of economic prosperity across all levels of society in Ireland. CCAB–I views the second-level teaching of accounting skills at Senior Cycle as highly valuable and strategically important for the Irish economy and has conducted its review of the current Senior Cycle Accounting syllabus to include the higher and ordinary level examination papers and solutions from recent years, as published by the State Examinations Commission. “Working with the key stakeholders in education, our goal is to help deliver a new Senior Cycle accounting specification that reflects the skills of the modern accountant and inspires the next generation of accountancy professionals, entrepreneurs and business leaders,” said Feighan. “The current Leaving Cert Accounting syllabus was introduced 25 years ago, and we have seen very significant changes in the profession in the intervening period. Take, for example, the impact of technology on the profession. Advances in artificial intelligence, robotic process automation and data analytics have transformed the role of accountants, enabling them to focus on their role as key advisors on major business decisions.” Skills such as critical thinking, problem-solving and communication are now more central than ever to accountants’ work, Feighan added, as is guiding companies in measuring and reporting on sustainability. “In our submission to the Department of Education, we outline how the syllabus can be reinvigorated to give Senior Cycle Accounting students greater insight into these trends. We have seen encouraging work undertaken in this vein with the new Junior Cycle Business specification, and this more rounded approach will help attract even greater numbers towards the accountancy discipline from an early age,” he said. Pace of progress Notwithstanding the growing number of Leaving Cert students choosing to study accounting, O’Neill is nevertheless concerned about the pace of progress at secondary level. “The needs in Ireland and among Irish businesses for suitably qualified accountants exists in the here and now. There needs to be a real sense of urgency from all parties on bringing our accounting education syllabus into the 21st century,” he said. “We are very supportive of the desire of the Department of Education to do this, including recognition of the time required to redraft syllabus content and the appropriate training requirements necessary for our teachers to be in a position to deliver the new syllabus. The profession is willing to be involved in helping this to become a reality.” Chartered Accountants Ireland educates more than 7,000 students in an academic year and has more than 31,000 fully qualified members on this island and around the world. To support engagement with accounting in schools, in 2019 Chartered Accountants Ireland launched the Boot Camp programme for Transition Year and Senior Cycle students (for more, see page 27). Now in its third year, the programme is used by close to 4,500 students in all 26 counties. Collectively, these students have completed over 63,000 online lessons. “Accountancy has never been as accessible as a profession, and Chartered Accountants Ireland is working to continue to build the talent pipeline to support growth across all sectors of the economy,” said Pat O’Neill. In addition to the well-established Training Contract pathway familiar to many, since 2009 Chartered Accountants Ireland has offered a flexible route, working and training with one of the many companies in different sectors that train Chartered Accountants through their dedicated graduate programmes. “There are many options for the next generation to join the profession, whether directly out of school via Accounting Technicians Ireland or after university or college,” said O’Neill.

Julia Rowan answers your management, leadership, and team development questions I manage a team of six people and rely on two of them a lot. They are quick, thorough, and committed. It would be difficult for me if either of them left the organisation. How can I hold on to them? When I read this, my mind went, not to ‘how do you keep your two high performers?’ but to ‘what is it like for the other four?’ It is so easy to rely too much on ‘good’ people, and unconsciously ignore others, but this can lead to a pattern of leadership neglect that disengages the team members getting less attention.  I have two strands of advice here. For your high performers, think about how you can help them to build their skills, and consult with them about the work they are doing. Include them in decision-making, give them more responsibility, and coach them.  Be proactive about rewarding them for the work they do – not just financially, but in terms of their visibility and professional development.  For the other four, practice ‘conscious inclusion’. Reflect on the skills and attitudes you want these team members to develop and build a strategy around that.  Take time on Friday afternoons to plan the following week’s activity and think about how you can best work with this group — individually or in pairs, for example — so that you can help them to develop their skills and commitment.  Demonstrate that you value them by spending time with them. Remember that conversation both reflects and shapes the relationships we have with people, so be very thoughtful about your conversations. It is worth exploring the concept of ‘Situational Leadership’ — see this issue’s book recommendation.  I was recently promoted to manage the team I had been a part of. Two of my colleagues also applied for the role. One is supportive, but the other — whom I used to get on well with — barely acknowledges me. She does her work, but never speaks at team meetings. She is the longest serving member of the team. What can I do? Learning to manage a team you used to be on is one of the hardest challenges a professional can face – especially when it is your first management role.  Becoming the boss does lead to a change in relationships. You need to move from ‘friend’ to ‘friendly’.  It is particularly important here that you have support from other people in your organisation (your boss, HR, and other colleagues). How you manage the situation really comes down to choices, however unconscious, about behaviour.  It sounds like your non-supportive report feels upset and humiliated and she may need a little time to lick her wounds. Your behaviour choice needs to be to deal with her in a friendly, fair, and professional manner.  If, after two months, your report has not changed her behaviour, you need to talk to her – and bear in mind that you may be entering risky territory. You need to share what you are noticing and ask for what you want instead.  The danger is that, in return, you may get passive-aggressive ‘politeness’ and letter-of-the-law-compliance. If this does happen, you may need to link in with HR for more support. If you read one thing… Leadership and the One Minute Manager by Ken Blanchard, Patricia Zigami and Drea Zigami, is about Situational Leadership. This is the theory that the leadership we offer depends on the situation (the employee’s level of responsibility, the complexity of the task at hand, etc). Situational Leadership offers managers a framework, which allows them to be very conscious about the management style they adopt and the conversation they have (directing, coaching, or empowering, for example). The book is written in ‘fable’ style, making it an easy read. 

Start-ups and SMEs have a unique edge when it comes to reaching customers who care about ethical business, writes Emma Jones Mention the word ‘sustainability’ to a small business and it will conjure up a couple of reactions. The word ‘sustainable’ has, of course, become common parlance for businesses that are watching their environmental footprint. In its widest sense, however, building a sustainable business means building a strong business that has resilient revenue streams, a team with a shared vision and, dare I say it, scope to survive and thrive should its founder depart.  These days, as sustainability becomes increasingly important to consumers concerned about climate change, start-ups that are kind to the planet are more likely to succeed over the longer term. In the UK, we are seeing many young people setting up ventures to right a wrong or deliver a product or service in a more sustainable way. These ethical entrepreneurs are a bright light for the future.  For established small businesses, becoming more sustainable may be a slightly more ‘forced’ practice whereby larger clients might be demanding change in their supply chain, for example.  As part of a pledge to cut its carbon footprint by a third by 2025, M&S last year announced plans to ‘grow carbon literacy’ among its buying, sourcing and operational partners, and to select 100 of these partners as Carbon Champions to help drive its net zero delivery.  Elsewhere, the environmental charity Hubbub partnered with Starbucks to launch a £1 million competition providing grants of up to £300,000 for alternatives to single-use packaging in the food and drink industry. The UK Government has also launched an online climate hub for SMEs with a database of practical tools and resources to help them develop a climate strategy, curb emissions, and build business resilience. At the end of the day, there is no more compelling reason for a small business to take action than in response the needs of their clients. Being a strong and sustainable business is good for the planet, and good for business, with growing evidence showing that more consumers are seeking out purpose-led and sustainable brands.  This trend suits small businesses well because it is often easier for them to be more human in how they approach their customers and their market. Entrepreneurial businesses can actively share the story and authenticity of why their founder started the business — Who are they? What inspired them to start their own venture? What do they care about? What do they want to achieve?  This personal approach, and the authenticity it imparts, can really help to draw in customers who want to buy into something that, not only delivers, but also has meaning.  Emma Jones is the founder of Enterprise Nation