Businesses in Northern Ireland are facing unprecedented levels of change as they continue to adjust to the new normal in the aftermath of the pandemic, writes Zara Duffy  The war in Ukraine and supply-chain challenges have led to inflation in the costs of fuel, materials and components. This means that businesses in Northern Ireland now need to review their pricing on a quarterly, if not monthly, basis.  Facing changing financing and cost structures, these businesses need professional advice on how to adapt and plan – advice they often see as another cost. Business and financial planning grant To help these SMEs, Chartered Accountants Ireland would like to see Invest Northern Ireland (Invest NI) reintroduce a Business and Financial Planning Grant similar to the scheme launched in October 2020 in response to the pandemic, which remained open for only a few months.  This scheme offered businesses up to £8,000 towards 80 percent of the eligible cost of engaging an external consultant to undertake a business and financial review to plan for their recovery.  If the scheme is reopened, we recommend that it be 100 percent funded up to the limit, and that it also be extended to non-Invest NI clients in a broader range of sectors across the economy.  We also recommend that the scheme be established on a permanent basis—particularly for micro and small businesses—and funded to include a follow-up review 12 months into the roll-out of the financial plan, with quarterly check-ins thereafter for up to three years.  The goal would be to ensure that financial plans do not just ‘sit on the shelf’, but become dynamic benchmarks, which are updated and adapted over time.  System of funding for SMEs As the positive effect of COVID-19 support schemes wanes, a longer-term, sustainable and mature system of funding is needed for SMEs in Northern Ireland—one that involves an appropriate mix of grants, loans and equity investment.  We want the Northern Ireland Government to prioritise SMEs and make more money available for funding, while also moving away from a ‘grants culture’ and towards the support of a vibrant business debt and equity market.  More private equity investors will be encouraged to enter the Northern Ireland market if they see the commitment of the Government and its agencies through the provision of part-funding.  This will create a self-sustaining ecosystem, as both investors and the State will get their money back and more, such as the creation of jobs. The hiatus with the Northern Ireland Assembly and Government has brought uncertainty to the three-year budget, including the allocation to Invest NI, a key agency for the region’s SMEs.  The indications are that the budget for Invest NI’s programme of supports and initiatives has been reduced from its previous level of £200 million.  Given Northern Ireland’s immense business potential, driven by its innovative start-ups and growing SMEs, it could be argued that at least £300 million should be made available from government sources for a ‘fund of funds’ for SMEs in the region. Chartered Accountants Ireland would like to see clarity on the quantum and focus of the budget allocation for Invest NI, for important programmes like Co-Fund NI, Tech start NI and the Small Business Loan Fund (SBLF).  We are concerned about the large gaps that are currently emerging in available funding, particularly given that money from the European Regional Development Find (ERDF) will begin to fall away from March 2023.  The business model for banks, the traditional source of SME finance, has changed. Low interest rates mean that margins are not there to take on risk, or at least not all of it. Government schemes are dwindling and even grants are not forthcoming.  This scenario is not ideal for an economy trying to recover from a pandemic, but it is good news that British Business Bank (BBB) has earmarked a £70 million fund for SMEs in Northern Ireland. We understand that more funding could be made available if the UK Government-owned BBB were to receive an appropriate proposal for an Enterprise Capital Fund. The Northern Ireland Government should at least match this commitment from BBB, if not exceed it to meet the potential of its business community.  With the right funding approach and leverage, there is an opportunity to create a more vibrant and self-sustaining SME sector in Northern Ireland.  We suggest benchmarking with other devolved nations and regions of the UK where this approach has worked—the Northeast and Midlands, for example. Equity investment & non-executive directors Northern Ireland accounts for just one percent of SME equity investment activity in the UK. There is potential for much more equity investment in the region, which would enable businesses to scale and grow.  As well as good corporate finance advice for SMEs, an awareness campaign using real-life case studies is needed to inform both business owners/managers, and their trusted advisors, about the benefits of equity as a source of finance. Equity investment provides more than just cash to a business. The investor also brings valuable expertise and experience, a new network of contacts, and strategic input, typically joining the board of the company as a non-executive director (NED). The perception that this involves unwanted cost and loss of control needs to be overcome. Chartered Accountants Ireland sees value in Invest NI’s Non-Executive Director Scheme and we believe its funding should be continued.  The scheme is designed to help SMEs strengthen their leadership capability, by supporting the appointment of an experienced independent NED. It also offers advice on the engagement of a suitable NED, and financial support of up to £15,000 or 49 percent of eligible costs, whichever is the lesser. There is some cost to the SME, but this serves to focus understanding of the value a NED will bring and the full buy-in of the business. More proposals by Chartered Accountants Ireland to create a better environment for businesses in Northern Ireland are presented in our annual position paper The Next Financial Year, published in July and available at www.charteredaccountants.ie

As SMEs grapple with tough trading conditions, spiralling costs and mounting uncertainty, Michael Diviney looks at what they will need in The Next Financial Year The exit of Ulster Bank and KBC from the Irish banking market has reduced competition in business lending considerably. For too many SME owners and their advisors, this lack of competition is having a detrimental effect—a point made by Chartered Accountants Ireland in The Next Financial Year: Creating a Better Business Environment, our most recent annual position paper, published in July.  If a business is not granted a loan by one of the two remaining pillar banks in the Irish market, it may have no option but to go to the other and accept its terms. Is this good for business? Most would agree that it is not. What went wrong? Among the 50-plus recommendations we have outlined in The Next Financial Year is the suggestion that the Irish Government carry out a review examining the reasons why Ireland has lost both Ulster Bank and KBC. These reasons are likely to include the capital asset requirements of the Central Bank, regulatory costs associated with banking in Ireland, and the legal complexity of repossessing properties. So, what can we do? We believe that there is widespread support for creating a third pillar bank and this role could be fulfilled by Permanent TSB, given the apparent lack of interest by foreign institutions in the Irish banking market.  Permanent TSB announced a new €1 billion SME-lending fund earlier this year. Further investment is required to achieve the scale necessary to deliver the financial products and services needed by the SME sector, however.  This is particularly important for the short- to medium-term as the economy emerges from the pandemic. For the long term, we recommend that the State continues its policy of reducing its ownership in the private banking sector.  Supporting alternative lenders As well as supporting competition in business banking, the Government also needs to recognise the importance of next-tier alternative lenders, which provide much-needed funding to SMEs.  As it is, the non-bank funding market in Ireland is too small and requires state support to grow. In particular, the Strategic Banking Corporation of Ireland (SBCI) must continue to grow and develop its partnerships. There has been some progress here with the announcement of the SBCI’s risk-sharing partnership with Metamo Credit Unions, and a separate agreement with Finance Ireland to provide €75 million in low-cost lending. Now, the SBCI must continue to encourage niche asset financiers and non-bank lenders into the under-€1 million lending market, fuelling the competition needed to better benefit and support SMEs. Grants and other supports In addition to strengthening sources of SME funding, grant-aid and other supports also play a crucial role.  Enterprise Ireland and the Local Enterprise Offices (LEOs) offer both. The problem is that they are aimed mainly at the manufacturing or internationally traded services sectors. We suggest that the Government and its agencies consider widening the eligibility criteria for such grants to include the more ‘traditional’ industries and service sectors that are so important to local economies and communities. We also ask if it is time to adapt the policies under which many grants and supports are offered—and on which the success of Enterprise Ireland and the LEOs is measured, i.e. the creation of new employment.  In such a tight labour market, in which many people are working in the ‘gig economy’, are SMEs being excluded from important supports simply because they are not adding full-time equivalents?  Adapting policy to the reality of Ireland’s 21st-century economy, we believe that performance measurement should be more balanced and include money spent domestically by State-supported businesses, for example on professional advice to help them grow. Business financial planning grant We have been consistent in our praise for the COVID-19 Business Financial Planning Grant administered by Enterprise Ireland.  This scheme provides a grant to businesses of up to €5,000 towards the cost of engaging an approved external consultant to help them overcome challenges posed by the pandemic—but its design holds potential value beyond that. The scheme helps a business to understand its immediate liquidity needs, create a financial plan to secure the external finance required for business continuity, and avail of a framework to manage the finances of the business. We propose that the scheme be given a more permanent status, beyond COVID-19, to become the Business Financial Planning Grant, and extended to include a follow-up review after 12 months, and quarterly check-ins thereafter for up to three years. This would serve to improve levels of financial literacy among business owners and managers, and address gaps in the financial management knowledge and skills of Irish businesses.  Also administered by Enterprise Ireland, the Sustaining Enterprise Fund and Sustaining Enterprise Fund for Small Enterprises were both introduced to help businesses rebuild after the impact of the COVID-19 outbreak.  No sooner had the pandemic begun to recede, however, then Irish businesses were hit by the effects of cost inflation caused by a global supply-chain crisis and the war in Ukraine.  In the context of such geopolitical uncertainty, we propose that a Sustaining Enterprise Fund or similar be made available on a permanent rolling basis for companies impacted by current or future shocks outside their control—though with eligibility decided on a case-by-case basis.  Again, we suggest here that the eligibility criteria be expanded to broader sectors of the economy beyond manufacturing or internationally traded services companies. Capital tax reliefs The SME sector relies heavily on capital tax reliefs such as Retirement Relief and Revised Entrepreneur Relief.  Both tax incentives encourage entrepreneurs to invest time and money in their businesses—and both could be improved if the recommendations outlined in the external review, carried out by Indecon in 2019, were implemented. The report recommended that Revised Entrepreneur Relief be retained as a valuable entrepreneurial support; that the requirement for the claimant to hold a minimum of five percent of ordinary shares be reformed; and that the lifetime cap of €1 million be increased to €12 million for entrepreneurs reinvesting in a new business. Lowering capital tax rates Though asset values have recovered since the financial crisis of 2008, capital gains tax (CGT) and capital acquisitions tax (CAT) rates have increased, and the high yields from capital taxes that flowed into the Exchequer during the ‘Celtic Tiger’ boom years have not been matched in recent years. Is it time to consider lowering CGT and CAT rates? We think so, because this would likely lead to more private and commercial transactions, resulting in much-needed tax revenues.  A lower rate of CGT could incentivise innovation and risk-taking, which would drive investment activity, thereby improving returns for entrepreneurs. Chartered Accountants Ireland believes that a headline capital tax rate of 20 percent would be a more reasonable level of taxation on gains, gifts, and inheritances. Measures introduced in Finance Act 2019 to enhance the R&D Tax Credit, particularly for small and micro enterprises, continue to await approval subject to Ministerial Order.  These include: increasing the R&D Tax Credit rate from 25 to 30 percent; raising the limit applying to cash-refundable tax credits to double the payroll tax liabilities for relevant accounting periods; and extending availability of this tax credit to companies engaging in research and development before trading commences. Michael Diviney is Executive Head of Thought Leadership at Chartered Accountants Ireland

Social enterprises can empower ordinary people to bring positive change to their communities and society, but what are the options  and where do you start? Chris MM Gordon outlines what’s involved, and the invaluable support accountants can provide If the COVID-19 pandemic has taught us anything, it is the importance to society of the power and resilience of ordinary people and local organisations providing community services.  Some of our busiest times at the Irish Social Enterprise Network were in the opening stages of the crisis when it seemed that for every private profit-making business that shut its doors, a social enterprise was opening theirs.  Communities formed groups to raise money for meals on wheels or to manufacture personal protective equipment for front-line workers. All of this was organic and determined—and because ordinary people felt empowered to make a difference. Throughout that time, more people became interested in setting up social enterprises, to better manage volunteers or oversee any money that is being raised and spent.  There was an increased drive from communities to form social enterprises, make them sustainable and retain goodwill—and they turned to their professional advisors to help them set up these new entities.  What is a social enterprise? A social enterprise is the original ‘business for good’. Social enterprises sell products and/or services for a profit, which is reinvested for a social and/or environmental cause. The National Social Enterprise Policy for Ireland 2019–2022 provides a more detailed definition:  A Social Enterprise is an enterprise whose objective is to achieve a social, societal, or environmental impact, rather than maximising profit for its owners or shareholders.  It pursues its objectives by trading on an ongoing basis through the provision of goods and/or services, and by reinvesting surpluses into achieving social objectives.  It is governed in a fully accountable and transparent manner and is independent of the public sector. If dissolved, it should transfer its assets to another organisation with a similar mission.” Social enterprises differentiate themselves in several ways. I find it useful to think of a social enterprises in terms of its ownership, funding and social impact. Ownership: Social enterprises are generally held by, or in trust for, the people they aim to serve. Social enterprises might be democratically owned, as in a co-operative where one person has one vote. More commonly, they might be structured as a company limited by guarantee, the idea being that no-one can sell the organisation for their personal gain. (Social Enterprises in Ireland: Legal Structures Guide, published by the Thomson Reuters Foundation and Mason Hayes & Curran, discusses the legal structures available for social enterprises in Ireland.) Funding: While social enterprises must generate income by selling products and/or services, it is common for them to receive grants or other public or philanthropic funding to supplement their income and allow them to function fully. Funding can come in many forms, but some funding streams are available to social enterprises only if they are set up as a specific type of company.  Social impact: There must be some measured social (and/or environmental) impact – for example, reducing homelessness – and the money raised or spent by the social enterprise needs to positively affect that impact.  ‘Work integration social enterprises’ are organisations that employ those that are furthest from the labour market. These could be people with physical disabilities or mild, moderate, or severe learning difficulties. Such social enterprises are providing employment and opportunities that may not otherwise be available. Setting up a social enterprise The best approach to setting up a social enterprise will depend on the context and a variety of other factors, including the nature of the problem the community or individual is trying to solve. For the professional advisor, the first step is to understand this, ask the right questions, and to listen. Community or individual?  Is the social enterprise being set up for and by a community or an individual? While it often takes a single individual to get things started, having the support and buy-in of a wider group of people shows there is a real need for the enterprise. It also increases the diversity of opinion and expertise needed to make a social enterprise successful. An issue seeking an enterprise? Someone wanting to set up a social enterprise may want to solve a specific problem that is close to them. They may have a sibling with a learning difficulty for whom they want to create a full-time job, for example. Their sibling loves making coffee, so they set up a café. This is an issue (finding employment for those distant from the labour market) that is looking for a business model to make it sustainable (a café). An enterprise seeking an issue?   The same could be true for someone with specific skills, such as a business-minded barista, who would like to do more than simply sell coffee. They are also looking for a social purpose to invest in and decide to employ people that are distant from the labour market—in this case, people with learning difficulties. This is an enterprise (a café) seeking an issue (employment for those distant from the labour market). Legal structure There is no specific legal structure required for social enterprises in Ireland. However, in my experience, people setting up a social enterprise for the first time often think that it must be a charity, without being aware of what that entails.  Gaining and maintaining charitable status can be onerous for a start-up and may not be necessary, or even relevant, in all cases. Some sources of funding may require charitable status, however. Knowing the sources and requirements of initial funding is important for choosing the right company type for a social enterprise. It may be tempting to advise a client to set up a social enterprise as a private company limited by shares and to spend its profits on whatever social cause they choose. This company type does not suit all circumstances, however.  Social enterprises come in a variety of forms. The use of each type of legal structure should be suitable, considered on its merits and aligned with the aims of the enterprise.  Again, the source of the entity’s funding and related requirements often determine the choice of structure. Here is an outline of the types of company set-up available to social enterprises: Company Limited by Guarantee (CLG)   This company type is the one most often chosen for social enterprises and comes close to company types in countries that have specific legal structures for social enterprises. CLG with Charitable Status   While charitable status (by application to the Charities Regulator) can apply to several types of legal structure, it most commonly applies to CLGs, subject to certain changes made to the constitution of the company, such as directors not being paid. There are advantages and disadvantages to having charitable status. Caution should be exercised as to whether it is necessary. Co-operative   A co-operative is an enterprise that is owned and controlled by its members and operates for the benefit of its members. A minimum of seven members are required to register a co-operative. The law governing co-operatives is currently being reviewed and updated. It is hoped that more co-operatives will appear as their benefits become more apparent. Private Company Limited by Shares (LTD)   Although this is the most common company type in Ireland, social enterprises tend not to be structured as private companies limited by shares. Designated Activity Company (DAC)  While the designated activity company structure has been applied to some social enterprises, it is more generally associated with financial institutions. There are relatively few DACs in Ireland that are considered social enterprises. The role of the accountant Working with social enterprises as they succeed in making a difference is inspiring. Accountants are in a unique position to advise individuals and communities from start-up, setting them on a path for sustainable impact.  Accountants can help social enterprises choose the first door they walk through. Picking the right door is the challenge.  People setting up a social enterprise often focus on the type of company that is being formed. Having taken time to listen to the client and understand the problem they are aiming to solve, the accountant can ensure that all of the available options (and the pros and cons of each) have been considered, the finance requirements planned for and aligned, and ownership and governance issues anticipated before a legal structure is chosen. Chris MM Gordon is Chief Executive of The Irish Social Enterprise Network Useful resources The Social Enterprise Toolkit is a resource for communities and individuals setting up a social enterprise in Ireland. It is available to download for free at socialenterprisetoolkit.ie The Irish Social Enterprise Network is the national body for social enterprise in Ireland. It provides information on the sector and useful pointers for people setting up a social enterprise online at socent.ie Social Enterprises in Ireland: Legal Structures Guide (Thomson Reuters Foundation and Mason Hayes & Curran, November 2020) is available to download at trust.org BuySocial.ie is a growing online directory of social enterprises operating in Ireland: buysocial.ie. The Charities Regulator provides guides to setting up a company with charity status: charitiesregulator.ie The Irish Co-operative Organisation Society (ICOS) provides information on setting up as a co-operative: icos.ie/starting-a-co-op/intro.

Delta Partners’ Maurice Roche has Ireland’s next generation of tech unicorns in his sights with the launch of the VC firm’s latest fund, writes Clare O’Sullivan. With the launch of its latest €70 million fund, Dublin-based venture capital firm Delta Partners is targeting the newest generation of promising seed and early-stage technology businesses across Ireland.    Announced in April, the fund is the sixth to be launched by Delta since its formation in 1995. In the years since, Delta has backed over 120 companies, realising a mammoth €1.8 billion.      The new fund is backed by limited partners (LP) including Bank of Ireland, Enterprise Ireland and Fexco as well as the family offices of successful Irish technology entrepreneurs. Bank of Ireland has been an investor in Delta’s previous funds and has a number of initiatives/products aimed at the technology sector. Fexco is a new LP to Delta and widely regarded for its innovation in the fintech sector. Previous companies that have received investment from Delta include Clavis, the e-commerce company sold to London’s Ascential plc in 2017, Neuravi, the Galway-based medtech firm acquired by Johnson & Johnson in the same year, and SensL Technologies—sold to ON Semiconductor in 2018. Delta’s current portfolio, meanwhile, includes Luzern, the Dublin-based e-commerce platform, and Sirius XT, a UCD spin-out developing the world’s first commercial lab-scale microscope. It is a diverse portfolio—and necessarily so, according to Maurice Roche, General Partner at Delta Partners and a Fellow of the Institute. “In a market as small as Ireland, you nearly need to be sector-agnostic as a VC investor. Our main focus is tech, but it makes sense for us to have a range of investments in the broader tech sphere,” Roche said. With the launch of Delta’s latest fund, as many as 30 start-ups will be in the running for funding over the next three to four years. “We will focus on a spread of early stage companies where we aim to be the first institutional investors , i.e. at the early seed stage (companies raising capital to develop the product and prove the value proposition with customers) to late seed (companies raising capital to scale on the back initial customer traction and have early signs of product/market fit),” said Roche. Among all potential investees, a top priority for Delta will be the people involved. “The numbers are important, obviously, but it’s also about the people to a huge extent, the market and the opportunity,” Roche said. “You want to be confident that the management team is capable of developing the product and getting early customer wins. The people behind the product really matter.” A case in point is Richard Barnwell, who recently joined Delta as a partner from Digit Games, the gaming studio he founded in Dublin in 2012. A previous investee of Delta Partners, Digit was acquired three years ago by Scopley, the LA-based gaming company. Another new addition to the Delta Partners team is Amy Neale, who is joining from Mastercard where she led fintech innovation teams globally. “Richard has real start-up experience, and he has been successful, so I think he will be a great support to the entrepreneurs we work with,” Roche said. “Amy is our first female partner and a very valuable addition because she has ‘lived’ in the fintech ecosystem through her role with Mastercard, and fintech is a sector we have invested in, and will continue to invest in, with our new fund.” The fund has reached a first close with Bank of Ireland and Enterprise Ireland as cornerstone investors, supported by Fexco and several family offices. New investors will be added to the fund in the months ahead. “We are extremely thankful to our investors who have entrusted Delta with their capital to invest in the next cohort of Ireland’s early-stage technology companies” Roche added. “This fund will be aimed at what we see as the funding gap for early-stage companies in Ireland. Great Irish entrepreneurs are succeeding across the technology spectrum and the main thing they lack is capital to help them achieve their ambitions,” Roche said. “Our focus will be the start of their journey and helping them to succeed at that foundational level.” A veteran of the VC sector in Ireland, Roche joined Delta Partners at its inception 27 years ago. “I qualified in 1990 and spent some time working in corporate finance where I gained experience advising companies raising venture capital. I was interested in technology, and it was serendipity really that I met Frank Kelly, the founder of Delta, by chance one day playing golf.  “Frank had come back from the States to set up a VC fund in Ireland and he was looking to hire. We got talking and I’ve been part of the Delta story ever since.” In that time, Roche has borne witness to the Dot.com crash, the recovery of the global tech sector, the launch of the iPhone and the rise of the mobile app, and the transition from on-site IT to Software-as-a-Service (SaaS) in an increasingly digital world. “From my own experience, I would say that Irish start-ups have done well in business-to-business (B2B) applications, particularly in fintech and payments,” he said. “We have a very strong entrepreneurial tradition and a lot of very successful companies that have scaled internationally across SaaS and enterprise applications spanning digital health, customer data analytics, customer experience management and many other areas. “We will always be looking at markets ripe for disruption because, where change is happening and new innovations are gaining traction, there is opportunity.” Right now, cybersecurity is one such market rich with opportunity, according to Roche.   “If you look at what has happened in the last few years, businesses have become a lot more conscious of the need to protect their data,” he said.  “We have seen a marked rise in phishing and other cyber-attacks. That has made people much more aware of data protection and privacy. As a result, we’re seeing a lot of money going into cybersecurity, particularly cloud-based offerings.” Another big focus for Roche is fintech. “We have seen just how transformational fintech can be from the consumer point-of-view and person-to-person payments with the rise of digital banking apps like Revolut and N26. “Our main interest here is on the B2B side, because the transformational effects technology continues to have in the enterprise space is enormous and there is a lot of potential there.  “We’ve also seen the speed at which tech start-ups in Ireland like Flipdish and Wayflyer have achieved unicorn status. “With this new fund, we want to find the very best tech start-ups out there waiting to be discovered and give them the funding and the support they need to achieve the global success they deserve.”

SMEs hit hard by the pandemic must now grapple with the economic fall-out of the war in Ukraine, signalling fresh uncertainty for the year ahead, so what’s the best plan of action? COVID-19 lockdowns, global supply chain disruption, inflationary pressure – and now the economic fallout from the Russian invasion of Ukraine.  The headwinds facing Ireland’s small- and medium-sized enterprises (SMEs) show no signs of easing as we enter the third quarter of 2022. Even as the year began, the imminent winding down of Government supports for COVID-hit businesses was already prompting speculation of a spike in insolvencies just around the corner. Now, Gabriel Makhlouf, Governor of the Central Bank of Ireland, has called on a “patient” approach from policymakers and creditors to help ensure that “unnecessary liquidations of viable SMEs are avoided over the coming months.” Speaking at a recent event in Dublin co-hosted by the Central Bank of Ireland, Economic and Social Research Institute, and the European Investment Bank, Makhlouf pointed to the need to “channel distressed but viable businesses towards restructuring opportunities and unviable businesses towards liquidation.” Uncertain outlook For those SMEs in the sectors hit hardest by the pandemic, the fresh economic turmoil sparked by the Ukraine invasion will be a cause for concern. “The outlook right now for SMEs generally in Ireland is very hard to determine,” said Neil McDonnell, Chief Executive of the Irish SME Association (ISME). “It will vary considerably from sector to sector, but after two bad years for hospitality and tourism due to the pandemic, the war in Ukraine is likely to mean volumes will remain low into the summer.”  Pandemic-related insolvencies have yet to spike. Research released by PwC in February found that Government support had saved at least 4,500 Irish companies from going bust during the pandemic, representing an average of 50 companies per week during the period. Insolvency rates are likely to rise in the months ahead, however, as pandemic supports are withdrawn from businesses with significant debts, and PwC estimates that there is a debt overhang of at least €10 billion among Ireland’s SMEs, made up of warehoused revenue debt, loans in forbearance, supplier debt, landlords, rates and general utilities.  “Government supports have to end at some point. We realise this, but it will be accompanied by a significant uptick in insolvencies. This is natural and to be expected, since 2020 and 2021 both had lower levels of insolvency than 2019,” said Neil McDonnell. “Aside from hard macroeconomics, however, we can’t ignore the element of sentiment in how businesses will cope. This is the third year in a row of bad news.” Confidence in the market Before taking on his current role as Managing Partner of Grant Thornton Ireland, Michael McAteer led the firm’s advisory services offering, specialising insolvency and corporate recovery. “What I’ve learned is that you really cannot underestimate the importance of confidence in the market,” said McAteer. “If we go back to 2008 – the start of the last recession – or to 2000, when the Dotcom Bubble burst, we can see that, when confidence is lacking, the pendulum can swing very quickly. “If you’d asked me a few weeks ago, before the Ukraine invasion, what lay ahead for the Irish economy this year, I would have been much more optimistic than I am now. “Yes, we were going to see some companies struggling once COVID-19 supports were withdrawn, particularly those that hadn’t kept up with changes in the marketplace that occurred during the pandemic, such as the shift to online retail – but, overall, I would have been confident. Now, it is harder to judge.” Government supports Neil McDonnell welcomed the recent introduction of the Companies (Rescue Process for Small and Micro Companies) Act 2021, which provides for a new dedicated rescue process for small companies. Introduced last December by the Department of Enterprise, Trade and Employment, the legislation provides for a new simplified restructuring process for viable small companies in difficulty. The Small Company Administrative Rescue Process (SCARP) is a more cost-effective alternative to the existing restructuring and rescue mechanisms available to SMEs, who can initiate the process themselves without the need for Court approval. “We lobbied hard for the Small Company Administrative Rescue Process legislation. The key to keeping costs down is that it avoids the necessity for parties to ‘lawyer up’ at the start of the insolvency process,” said McDonnell. “Its efficacy now will be down to the extent to which creditors engage with it and, of course, it has yet to be tested in the courts. We hope creditors will engage positively with it.” McDonnell said further government measures would be needed to help distressed SMEs in the months ahead. “We already see that SMEs are risk-averse at least as far as demand for debt is concerned. Now is the time we should be looking at the tax system to incentivise small businesses,” he said.  “Our Capital Gains Tax (CGT) rate is ridiculously high, and is losing the Exchequer potential yield. Our marginal rate cut-off must be increased to offset wage increases.  “Other supports, such as the Key Employee Engagement Programme (KEEP) and the Research and Development (R&D) Tax Credit need substantial reform to make them usable for the SME sector.” Advice for SMEs For businesses facing into a challenging trading period in the months ahead, Michael McAteer advised a proactive approach. “The advice I give everyone is to try to avoid ‘being in’ the distressed part of the business. By that, I mean: don’t wait until everything goes wrong.  “Deal with what’s in front of you – the current set of circumstances and how it is impacting your business today.  “Ask yourself: what do I need to do to protect my business in this uncertain climate, and do I have a plan A, B and C, depending on how things might play out? “Once you have your playbook, you need to communicate it – and I really can’t overstate how important the communication is.  “Talk to your bank, your suppliers, creditors, and your employees. Sometimes, we can be poor at communicating with our stakeholders. We think that if we keep the head down and keep plugging away, it will be grand.  “By taking time to communicate your plans and telling your stakeholders ‘here’s what we intend to do if A, B or C happens,’ you will bring more confidence into those relationships and that can have a really positive impact on the outlook for your business. “Your bank, your creditors and suppliers are more likely to think: ‘These people know their business. They know what they’re doing.’ If something does go wrong, they know that there is already a plan in place to deal with it.” Role of accountants Accountants and financial advisors will have an important role to play in the months ahead as distressed SMEs seek advice on the best way forward. “We are about to experience levels of inflation we have not seen since the 1980s. This will force businesses to address their cost base and prices,” said Neil McDonnell. “My advice to SMEs would be: talk to your customers, to your bank, and your accountant. Your accountant is not just there for your annual returns. They are a source of business expertise, and businesses should be willing to pay for this professional advice. No business will experience an issue their accountant will not have not come across before.” As inflation rises, SMEs are also likely to see an increase in the number of employees seeking pay increases, McDonnell added. “Anticipate those conversations, if they haven’t occurred already,” he said. “Any conversation about wages is a good time to address efficiency and productivity – is there more your business could be doing to operate more efficiently, for example, thereby mitigating inbound cost increases?”

Tackling climate change will mean embracing economic models that prioritise the many, not just the elite few, writes Kate van der Merwe. In the pursuit of a holistic and inclusive economy that can serve current and future generations, we need to take a fresh look at our economic alternatives.  We are facing existential challenges: a climate crisis that we continue to escalate; a biodiversity crisis that is the sixth mass extinction; and significant inequities that the coronavirus pandemic has served to both highlight and exacerbate.  We must review how our economy works with a focus on real value and equity. In doing so, let’s scrutinise the underlying assumptions and realities, and consider alternative options, including the transformative innovations of social and circular economies. The current context Traditionally, economics is often framed as the study of how people make choices and allocate scarce resources over time, individually and collectively — for example, forsaking consumption now for later benefit (in finance, the choice to invest). Key concepts include ‘utility’ (the satisfaction from something) and ‘consumption.’  The relationship between both is represented by the ‘utility curve,’ which defines utility in direct and positive relation to consumption. Simplified, this means that the more we consume, the happier we are.  In finance theory, utility becomes defined in terms of monetary value. The concept of ‘consumption’ also defaults to a narrow definition of a one-time event. When supply meets demand in the market, for example, economic actors (businesses) are driven to mass-produce for one-off transactions, placing emphasis on short term profits.  When core concepts are so narrowly defined, the underlying utility or value is distorted. By focusing so narrowly on monetary value, we can become disconnected from the real value of the ‘thing’ money is buying and being valued upon. An investor following these limited definitions might, for example, invest in a high-yield mining company even if those yields are derived from destroying the health and wellbeing of their community, and feasibly worsening the investor’s overall utility, particularly in the long term.  If we assume that the fulfilment of our essential physiological needs has the highest incremental utility, then a theory assuming and supporting insatiable consumption — despite the consequences of that consumption threatening our essential physiological needs — appears contradictory.  As the COVID-19 pandemic has highlighted, inequity remains a significant challenge. In the current global economy, just one percent of the population holds 38 percent of wealth, while 50 percent holds just two percent.   During the pandemic, the world’s 10 richest men doubled their wealth. As the average worker faced job insecurity, CEO compensation rocketed. In the US, the CEO-to-worker compensation ratio reached 351:1 (in 1965 it was 21:1).  The pandemic has been a relatively mild precursor to the disruption that is building because of climate change – a threat that we have created, one that our current economic system perpetuates and that we have the power to stem. In facing this disruption, we will need economic models that prioritise the many, not just the elite few.  Alternative approaches Alternative models and ideas include circular, ecological, ‘donut,’ community, collaborative or sharing, social and solidarity economies. Loosely speaking, many focus on or draw inspiration from addressing social inequity and/or the environmental crises.  They look to democratise the economy, to better address systemic inequities, as well as incorporating realistic assessments of nature’s limits, so that we might begin to tackle our self-destructive environmental trajectory. Many of these ideas are not new. They are part of our history.  Their elegance is in their flexibility and compatibility with being layered and combined, an example being a social enterprise engaged in the circular economy. Given the breadth of this topic, this article briefly discusses two of the alternative models: social economy and circular economy. The social economy While the concept of the social economy is long-standing, its definition is evolving. Existing forms of social economy businesses include cooperatives, mutuals and social enterprises. Key features include a core organisational purpose of maximising societal and/or environmental impact, not profit, through the reinvestment of profits, and often incorporating democratic governance.  Existing forms of social economy businesses include cooperatives, mutuals and social enterprises. Within the EU, 2.8 million (10 percent) of all organisations are social economy enterprises, employing 13.6 million people.  While GDP is a problematic measure, the social economy contributes eight percent of the EU’s. One growing and exciting part of the social economy are those social start-ups that are applying innovative solutions to some of our biggest problems, like climate change, often tackling social and environmental issues simultaneously.  During the COVID-19 pandemic, the social economy gained visibility for its resilience and its value creation on a broader scorecard and structural supports are developing.  Last year, when announcing social enterprise funding, Minister for Rural and Community Development, Heather Humphreys, recognised social enterprises for “the invaluable role” they played throughout the pandemic, making “an important contribution in areas such as mental health, social inclusion and the circular economy.” In 2019, the Irish Government published the National Social Enterprise Policy for Ireland 2019–2022, which is also a core component of the State’s plans for rural and community development.  The EU is also scaling up support for the social economy, publishing the Social Economy Action Plan in 2021 for implementation this year, with plans for an EU Social Taxonomy.  A European stalwart of the social economy, based in the Basque Region of Northern Spain, is the Mondragon Cooperative Corporation.  Established in 1956, Mondragon is one of the largest corporates in Spain, with sales in over 150 countries. It comprises a collection of mutually supporting social enterprises engaged in education and innovation, finance, retail, and manufacturing/engineering (including the esteemed Orbea bicycles brand and Urssa, the world-renowned steel manufacturer).  Mondragon is particularly intriguing given its social impact aspirations — the structures and practices it has created to differentiate itself as social (such as maintaining a pay ratio limit of 6:1), while maintaining success in an ill-fitting capitalist economic structure.  Ireland also has its own booming social enterprise sector, with plenty of examples across a wide range of sectors, such as:  FoodCloud (connecting retailers with charities to donate food);  Airfield Estate (a working farm, kitchen, education, and food destination in Dublin); WeMakeGood (Ireland’s first social enterprise design brand) and; Moyee Coffee (“a radical company with radical [Fairchain] impact”). The circular economy The circular economy is also gaining ground, driven by the threat of climate change. The circular economy designs out waste by optimising scarce resources to build a restorative and regenerative economy.  It does this by deploying interdisciplinary systems thinking, i.e. considering complex systems holistically, and incorporating relationships and interdependencies between parts.  A long-term approach to resources, especially minimising the use of raw materials, fundamentally contrasts the circular economy with the linear ‘take-make-waste’ economic system.  The circular economy treats natural resources as scarce, which serves to keep climate breakdown and the threat to our survival front and centre. Maintenance and repair services grow, while production becomes more focused on non-virgin sources, thereafter prioritising regenerative materials. The emphasis is on prolonging the life and utility to be gained from products. This shifts the focus from expiry-bound consumption to ongoing use. The circular economy also diversifies the ways we transact – from individual ownership to shared ownership or rental (product-as-a-service).  The Whole of Government Circular Economy Strategy 2022–2023: Living More, Using Less, the first of its kind in Ireland and the Environmental Protection Agency’s Circular Economy Programme 2021–2027, both launched in December 2021.  These are core to the Irish Government’s drive to achieve a 51 percent reduction in greenhouse gas emissions by 2030 and to reach net-zero emissions by no later than 2050. A Circular Economy Bill is also in development.  Similarly, the EU is enabling the circular economy as part of the European Green Deal, adopting a new circular economy action plan (CEAP) in March 2020.  This action plan introduces both legislative and non-legislative measures aimed at facilitating the transition to a circular economy, including the establishment of the European Circular Economy Stakeholder Platform for sharing and scaling up the circular economy. Examples of businesses successfully applying circular principles include MUD Jeans, which offers a discount on the next purchase or lease for each pair of end-of-life jeans returned, recycling the returns into new jeans, eliminating waste, and using 92 percent less water in production.  Locally, the Rediscovery Centre in Dublin is the National Centre for the Circular Economy in Ireland. It hosts four up-cycling social enterprises in fashion, furniture, bicycles, and paint, as well as an Eco Store, and provides various educational offerings. Traditional businesses are also increasingly incorporating circular elements. Harvey Norman, for example, is offering preowned, refurbished phones. Holistic view While the traditional economy has a limited singular focus on the point-of-purchase, many of the alternative economy models, such as social and circular, take a more holistic view and can recognise and pursue multiple goals simultaneously.  Such models reflect the complexities of our environment, including the challenges of climate change, and intrinsic value, more accurately. These alternative ideas are also more dynamic. They can be combined with one another and enable better designed, more resilient outcomes.  Greater care is taken in defining what an organisation does as well as how it does it, generating more equitable outcomes by holistically considering impact, and providing greater long-term efficiency in synthesising society’s needs and the management of scarce natural resources.  In doing so, these alternatives better address critical unpriced externalities and offer ways to change our current self-destructive trajectory. Our traditional economy appears to focus on scarcity of value, durable efficiency, and resources, while the alternative economy models focus on their regeneration and restoration.  These alternative ideas offer fundamentally different approaches in how value is created, measured, and maintained, and are better suited to the holistic and inclusive economy needed by current and future generations. Kate van der Merwe, FCA, is a Sustainability Advocate and member of the Institute’s Sustainable Expert Working Group.

COVID-19 has changed the face of banking globally, but what’s next? Billy O’Connell delves into the top 10 emerging trends shaping banking this year. The COVID-19 pandemic has irrevocably changed the banking industry. Customers have become more demanding on multiple fronts - from service fees to sustainability - banks have doubled down on technology, accelerating their innovation drive, and new entrants to the market have become more ambitious, broadening the scope of services they offer. Here are the ten trends most likely to impact banking globally and locally in the months ahead.  1. Everyone wants to be a ‘super-app’ Just as the smartphone consolidated our hardware needs within a single device, super-apps are consolidating many of our retail, social and other needs.  Most digital banking consists of checking balances, paying bills, and making deposits — functionality more and more big technology players are incorporating into broader platforms alongside other services like commerce and social networks.  How should traditional banks respond when faced with the expansion of Amazon, Meta, and others into financial services?  They can try to add non-banking functionality to their own services and compete head-to-head for customer attention or partner with a super-app to provide white-label services. A third option is to wall themselves off from the fray and defend their traditional franchise.  2. Green gets real Investors and regulators will need to see environmental promises being delivered as they urge financial firms to become better stewards of the planet.  Proposed rules will require independent verification, proving that banks are living up to their claims. They will face immense pressure to redirect credit away from carbon-heavy companies toward sustainable energy.  In Ireland, lending has become increasingly ‘green.’ The main financial institutions are evolving their product offerings, focusing on supporting environmentally-friendly economic activity. These products make a real difference as they actively guide consumers towards a change in their behaviours.  3. Innovation makes a comeback Globally, the decade after the great financial crisis was a period of retrenchment in which many banks pulled back from introducing new products and focused on getting the basics right. Start-ups and digital challengers have emerged, with new offerings leveraging innovative solutions to target specific customer pain points.  The growth of Buy Now Pay Later (BNPL) providers is an example of this. However, banks are fighting back with creativity. Irish retail banks have invested significantly in the last five years in technology and innovation projects to deliver new digital services for customers.  We are seeing this in product innovation across the board – in the introduction of fully digitised customer journeys for personal lending and mortgages, instant account opening, data analytics and new digital capabilities to support SME lending.  During the pandemic, we saw retail banks improvising and innovating at speed as they leveraged their technology investments to respond with creativity and agility to the new challenges. 4. Fees Over the last several decades, banking fees have shifted from regular charges for services like account maintenance to in-built fees for facilities like overdrafts.  Fintech firms arrived, promising an array of services for the magical price of free, only to reveal later that revenue must come from somewhere.  Banks are creating features that put the users in charge of fee decisions. Fortunately, digital, AI and cloud capabilities are converging to provide the perfect platform for personalised advice that will help build consumer trust and involvement. 5. The digital brain gets a caring heart Before and during the pandemic, banks continued to invest heavily in digital technology to make banking more accessible, faster, and efficient. However, it is more difficult than ever to win customer loyalty.  Banks realise they have much to gain by learning to better understand and respond to customers’ needs and individual financial situations. Being well-positioned to meet customer needs through the challenges of the past 24 months has been important for banks and customers who needed their support.  Building on this momentum and focusing on AI and other technologies will be important to help banks predict customers’ intent and respond with more tailored messages and products. 6. Digital currencies grow up Several central banks worldwide are now launching digital currencies, and more are thinking about it. These are accompanied by maturing regulations around cryptocurrencies and a recognition that, while decentralised finance (DeFi) may still be in the experimentation phase, many of the core concepts of decentralised trust will likely have enduring value.  We will likely see more financial institutions and government agencies sharing data and ideas on how to incorporate aspects of this new type of money into the global financial system.  According to the Competition and Consumer Protection Commission (CPCC) research, one in ten Irish investors (11%) held crypto assets or cryptocurrency like Bitcoin in 2021. The number jumps to one in four (25%) for those aged between 25 and 34, indicating the appetite amongst younger generations in Ireland for digital money.  7. Smart operations put zero in their sights In 2022, banks will apply artificial intelligence and machine learning to back-office processes, enabling computers to outperform humans in some tasks. This will, eventually, decouple bank revenue from headcount.  Banks have made incremental efforts to streamline their operations at a global level. These new technologies, along with the use of the cloud and APIs, can accelerate their efforts well beyond small efficiencies and toward the long-held dream of ‘zero operations’ where waste and latency are eliminated.  8. Payments: anywhere, anytime and anyhow Getting paid and sending money are now anytime, anywhere features we’ve come to take for granted. The next step in this payment revolution is for these networks to open up. China has already demanded that internet companies accommodate rival payment services. At the same time, proposed legislation in India would force digital wallets to connect and mandate that merchants accept payments from all of them.  Banks with payment offerings will have to compete and cooperate with rival banks, fintech, and other players as the world of networks opens up. We’ve seen this gathering momentum locally, with AIB, Bank of Ireland, KBC, and Permanent TSB coming together on a joint venture to create a real-time payments app. The continued investment highlights the desire to evolve in response to customer needs and compete with digital challengers, such as Revolut.  Customer trust is an essential factor in driving success in the financial services industry. If the banks can give consumers the digital functionality they crave, alongside reliability and service, they could leapfrog their challengers. 9. Banks get on the road again Just as individuals are relishing getting out from under pandemic travel restrictions, banks too will go wandering in search of growth both at home and abroad. In Ireland, we’re already seeing M&A activity from the core banks, causing a seismic shift in the entire landscape.  This includes Bank of Ireland’s takeover of the capital markets and wealth management divisions of Davy stockbroker and its purchase of KBC’s loan book; AIB’s acquisition of Goodbody Stockbrokers and its JV with Great West LifeCo; and Permanent TSB’s purchase of Ulster Bank’s loan book.  10. The war for talent intensifies Figures released from The Workhuman Fall 2021 International Survey Report indicated that almost half (42 percent) of Irish employees plan to leave their jobs over the next twelve months.  As technology has become a critical enabler for banks, a much-publicised shortage of engineering, data and security talent presents a real challenge. Younger workers, in particular, want flexibility and to be valued in their jobs.  Forward-thinking banks are developing integrated plans that holistically address their work and talent issues. They’re mapping the skills they need now and expect to need in the future and are using a variety of approaches to recruit and retain them. They are also re-assessing their structure, culture, and work practices to improve their appeal as employers.    Time for a different approach Decades from now, the most successful banks will be those that continuously shape their businesses to the needs of customers, employees, and other stakeholders. Their greatest asset will be their ability to identify opportunities and innovate efficiently.  Billy O’Connell is Head of Financial Services business at Accenture Ireland.

Richard Howard and Ryan Mathers share their insights on the cloudy topic of accounting for software-as-a-service costs. Accounting for software costs has traditionally lagged behind technological developments, so it is little wonder that there is some uncertainty around accounting for cloud computing costs. A recent International Financial Reporting Standards Interpretations Committee (IFRIC) agenda decision on cloud computing costs, while employing a sound decision-making framework, gave an answer at odds with the perception of many financial statement preparers. Before IFRS, we had FRSs, and FRS 10 set out that software that made a computer productive was classed as a fixed asset. Software was viewed as an integral part of the hardware. This standard was introduced in 1997, when software was only beginning to become a differentiated product from the computer or server it sat on. Even at this early stage, accounting standards lagged what was happening in practice. We have recently seen the move to cloud computing and software-as-a-service (SaaS). To illustrate the importance of cloud-based expenditure to the global economy, a Gartner survey from October 2021 estimated global IT expenditure of $4.47 trillion. Hardware constituted 18% of this spend, with the remainder spent on software, communications and data centres. Most of that will be spent on implementation and ongoing services for cloud-based software, cloud-hosted data, infrastructure as a service, and platforms. We have seen two recent IFRIC decisions on the topic of SaaS. The first agenda decision, published in March 2019, concludes that SaaS arrangements are likely to be service arrangements rather than intangible or leased assets. This is because the customer typically only has a right to receive future access to the supplier’s software running on the supplier’s cloud infrastructure. Therefore, the supplier controls the intellectual property (IP) of the underlying software code. On its own, many would see this as a logical conclusion. The second agenda decision, published in April 2021, deals with specific circumstances concerning configuration and customisation costs incurred in implementing SaaS. In limited circumstances, certain configuration and customisation activities undertaken in implementing SaaS arrangements may give rise to a separate asset where the customer controls the IP of the underlying software code. For example, the development of bridging modules to existing on-premises systems or bespoke additional software capability. In all other instances, the IFRIC agenda decision is that configuration and customisation costs will be an operating expense. Accordingly, they are generally recognised in profit or loss as the customisation and configuration services are performed or, in certain circumstances, over the SaaS contract term when access to the cloud application software is provided. The March 2019 decision largely endorsed what was general practice. Companies were receiving a service over a period, and companies agreed with the substance of that. The April 2021 decision, however, has been heavily debated. In discussions with many preparers of financial statements, few have agreed with the decision. While CEOs are talking about their digital transformation, this IFRIC decision tells the CFO how to account for the up-front configuration and customisation of that digital transformation, which in most cases is to expense it as incurred. This is at odds with a simple view expressed by many that the benefit of these costs accrue over a period, so why would they not be capitalised? The April 2021 decision, however, is based on various principles that, in aggregate, gives a decision at odds with the view of many CFOs. To understand their decision, it is helpful to summarise the difference between on-premise software and software as a service (see Table 1). In March 2019, IFRIC observed that a right to receive future access to the supplier’s software running on the supplier’s cloud infrastructure does not, in itself, give the customer any decision-making rights about how and for what purpose the software is used. Nor does it, at the contract commencement date, give the customer power to obtain the future economic benefits from the software itself and restrict others’ access to those benefits. Consequently, IFRIC concluded that a contract that conveys to the customer only the right to receive access to the supplier’s application software in the future is neither a software lease nor an intangible software asset, but rather a service the customer receives over the contract term. Some scenarios were set out where the SaaS expenditure may meet the criteria for being an intangible asset, including where the customer is allowed to take ownership of the asset during the contract or where the customer is allowed to run the software on their own hardware (consistent with FRS 10 in 1997!) The April 2021 decision led on from this train of thought, which can be summarised as: “If you incur expenditure connecting your business to a cloud-based solution, you do not own that asset. As it is not your asset, you cannot capitalise costs you incurred in customising or configuring that software.” So, the question arises: are there any scenarios where an entity may capitalise configuration and customisation services? The simple answer is yes, and this occurs when the entity can control the software. For example, this may arise where the customer has the right to keep the software on-premise on their own servers or behind their own firewall. For on-premise software, the activities likely represent the transfer of an asset that the entity controls because it enhances, improves, or customises an existing on-premise software asset of the entity. While IFRIC only discussed configuration and customisation activities of implementing a SaaS arrangement, the full SaaS implementation includes various activities. Table 2 illustrates some examples (not all-inclusive) of typical costs incurred in SaaS arrangements and the likely accounting treatment of each. Practical implications Beyond complying with IFRIC’s meeting agenda decision, there are some considerations for the many companies who have undertaken, or are undertaking, SaaS implementation projects: IAS 8 requires an entity to retrospectively apply an accounting policy change as if the entity had always applied the new policy. Companies may need to determine if they have capitalised costs that IFRIC may suggest should not have been capitalised and if this impacts comparative periods. Budgetary decisions may have been made based on digital transformation projects being largely capital in nature. However, with such costs now being expenses, it may impact performance when reviewed against budget or external forecasts. Some banking covenants contain EBITA or capital expenditure requirements, so the impact on covenant compliance may need to be assessed. Conclusion Interestingly, while the IFRIC Committee agreed with the interpretation from April 2021, out of the 19 comment letters received, only five respondents agreed with the analysis and conclusion. This would suggest that many see an issue with practicality in the decision. Many companies we have spoken to point to the long-term benefit of such costs as the reason they view capitalisation as the appropriate route for configuring and customising software. Others have cited that it is an upgrade on the previously on-premise capitalised costs, hence appropriate to capitalise. As we continue to use assets such as SaaS or other cloud-based solutions, it will be interesting to see how GAAP develops to recognise that software and hardware are no longer interdependent. Other topics such as accounting for open-source software development, open network cooperation, and platform arrangements will be interesting when they become material in the business world. Richard Howard is a Partner in Deloitte’s Technology, Media and Telecommunications industry group. Ryan Mathers is a Manager in Deloitte’s Technology, Media and Telecommunications industry group.

Professor Anne Marie Ward and Professor Niamh Brennan, both Chartered Accountants, make the case for diversified accounting faculties with a healthy proportion of accounting academics who are professionally and doctoral qualified. The accounting profession comprises three pillars: research, policy, and practice. Rigorous research should inform policy, which leads to best practice. Accounting faculties in higher education institutions can foster links between the three pillars. They prepare students for entry to the accountancy profession; hence, they have the potential to influence future practice. They also undertake research that can inform policy, including regulation of the profession, standard-setting, accounting education, and ethical approaches. What is the problem? Some argue that accounting education is too focused on techniques, rules, processes, and procedures, with insufficient focus on the ethical implications of accounting and its role in the economy and society. Some also argue that accounting research is too academic, unrelated to accounting practice and hence has little impact on policy formulation. In academic circles, this is referred to as the ‘theory-practice gap’. We believe that having a healthy proportion of accounting academics with both a professional qualification and an academic qualification (i.e. PhD) within accounting faculties can help resolve these problems. As these individuals have experience in practice, they can better inform student learning. In addition, they are best placed to identify research areas that would benefit the profession. Unfortunately, however, the proportion of professionally trained and research-trained academics within accounting faculties across the globe is dwindling due to retirements and a dearth of accounting doctoral graduates. University ranking metrics have not helped. For example, recruitment policies in the UK since the 1980s have largely ignored the professional accountant pool due to pressures from higher-education performance metrics. Research scoring systems, such as the UK Research Excellence Framework, feed into university rankings and influence university funding. Consequently, university managers focus on recruiting individuals with PhDs who are more likely to achieve the research outputs required to enable the university to move up the rankings and optimise funding. Therefore, there has been a shift to recruiting PhD graduates from other disciplines, for example economics and engineering, to accounting posts because of a lack of accounting doctoral graduates. However, these individuals are not equipped to service technical accounting subjects. Thus, university managers employ non-research trained professional accountants as teaching associates/part-time lecturers to service professionally accredited modules. As a result, accounting faculties in some universities comprise two cohorts: those academically trained (i.e. PhDs) and those professionally trained and qualified (e.g. Chartered Accountants). This dichotomy is concerning for the future of accounting as an academic discipline, as it serves to widen the gap between theory and practice. Indeed, academics argue that the future of accounting as a separate academic discipline is at a crisis point, with accounting departments increasingly seen as service providers (‘cash cows’) that help to finance other academic subject areas, as opposed to being a premium academic subject in its own right. International interventions Accounting profession representative bodies and policymakers in the US, England and Wales consider it strategically important to retain accounting as a quality academic subject area that actively produces research to inform accounting policy and practice. To this end, they have implemented strategies to reduce the shortfall of academically trained professional accountants. For example, the American Institute of Certified Public Accountants’ (AICPA) Accounting Doctoral Scholars (ADS) programme manages the largest investment ever made by the accounting profession to address the shortage of accounting faculty members (www.adsphd.org). This started in 2008 when accounting firms, state CPA societies, the AICPA Foundation and others invested over $17 million in the programme. By 2020, this funding had helped more than 100 CPAs transition into academic careers. In the UK, the Institute of Chartered Accountants England and Wales, (ICAEW) Livery Charity provides four grants every year to successful ICAEW members who decide to pursue a career in academia and undertake doctoral studies. The total grant is £15,000 per successful applicant and is paid on a pro-rata basis throughout the doctoral programme. The situation in Ireland In Ireland, the links between the accounting profession and higher education institutions are strong and recruitment policies to accounting faculty posts have historically favoured professionally qualified candidates. Thus, most Irish higher education institutions have a diverse mix of accounting academics, including those who are: Both professionally and research trained; Research trained only; and Professionally trained only. This diverse range of backgrounds should foster communion between research, policy, and practice. However, increasing pressure on higher education institutions to meet the performance targets required under university quality ranking systems means that recruitment strategies now favour doctoral qualified candidates. Care is needed to ensure that the dichotomy observed in other countries does not become a feature of Ireland’s accounting faculties. A balance between the three pillars is necessary to ensure that accounting remains an important academic subject in its own right within higher education institutions and not a cash cow that generates income to fund other academic subject areas. Lecturers with both professional and academic skills can serve as a bridge between academia and practitioners and between non-professionally qualified, research-focused academics and teaching associates. Combining the skills of a professionally orientated faculty alongside relevant and high-impact academic research not only prepares students for the future of work as professionally trained accountants, it also contributes favourably to the development of accounting, business, society, and the broader economy. The UK Research Excellence Framework places a premium on research that has impact, where research can be proven to have informed society or business. This is more achievable if accounting faculties include professionally qualified individuals with links to the profession who are also research trained. Research has shown that university managers identify an ideal academic as someone who can produce “rigorous and high-quality research, to teach to a high standard, to fuse academic and professional knowledge and experience, and foster relationships with the wider accounting community”.1 This suggests a market for accounting lecturers that are both professionally and academically trained. Why do professional accountants enrol for doctoral education? Research has not examined what drives professionally qualified accountants, who have an established career, to start again at the bottom rung of the ladder in academia. In response to this gap in knowledge, we addressed two questions in our research: What motivates students to enrol in accounting doctoral programmes? Is there a difference in the motivation of professionally qualified and non-professionally qualified accounting doctoral students to enrol?2 To investigate these issues, we surveyed and interviewed 36 accounting doctoral students enrolled at higher education institutions on the island of Ireland. Of these, 13 were professionally qualified. In total, 14 reasons for enrolling for doctoral education were uncovered. Interviewees reported that their main motivations for enrolling for doctoral education were expectations of a career in academia, enjoyment of research or interest in their doctoral topic, the status of the PhD qualification and work-life balance. In terms of differences, non-professionally qualified doctoral students were predominately motivated to enrol by the pursuit of knowledge and financial rewards. In contrast, most professionally qualified doctoral researchers were initially motivated to enrol because of dissatisfaction with their professional careers. In the main, they felt they lacked autonomy over their work and work-life balance. Autonomy is a key psychological need. When individuals consider that they do not have autonomy over their life, it can affect their well-being and happiness. In addition, about half of the 13 professionally qualified interviewees felt that they did not have a sense of belonging in the profession. Those dissatisfied with their professional career anticipated that an academic career would enable them to have more autonomy over their work and work-life balance. In addition, they were attracted by the status of the PhD qualification, and most interviewees identified that they were interested in researching a topic in depth. A career in academia? We end this article with a call to Chartered Accountants wishing to change careers. If you enjoy learning new things, working independently, and being challenged, you will enjoy research. If you enjoy developing other people, you will enjoy teaching. Finally, if you are ambitious, you will be given plenty of leadership opportunities. Most lecturers are course directors or have other leadership positions from early in their careers. Therefore, if you are considering a career change, why not consider a career in academia? 1 Paisey, C., and Paisey, N.J. (2017). The decline of the professionally-qualified accounting academic: Recruitment into the accounting academic community, Accounting Forum, 14(2), 57–76. 2 Ward, A.M., Brennan, N., and Wylie, J. (2021) Enrolment motivation of accounting doctoral students: Professionally qualified and non-professionally qualified accountants, Accounting Forum, 1–24.  This research was funded by the Chartered Accountants Irish Educational Accountancy Trust, CAIET Grant number 201/15. Full details of our research study are available at the following link: https://doi.org/10.1080/01559982.2021.2001127 Anne Marie Ward FCA is Professor of Accounting at Ulster University. Niamh Brennan FCA is Michael MacCormac Professor of Management at University College Dublin.

Resonant with the Institute’s position paper, The Next Financial Year, Michael Diviney surveys some of the issues and changes expected in 2022 and beyond. Changes at the core After years of relative stability, disciplines associated with Chartered Accountancy are about to undergo significant change, a key source of which will be legal and regulatory initiatives from the European Union. In 2022, the focus and effects of this change will be seen in: Environmental, social and governance (ESG) reporting: A new Corporate Sustainability Reporting Directive (CSRD) is due. In tandem with this, the European Financial Regulatory Advisory Group has been asked to develop ESG reporting standards by mid-2022 to be applied in EU member states. Reform of the audit market: An EU Commission consultation on the ‘three pillars’ of corporate reporting, corporate governance, and audit and supervision with a response deadline of 4 February 2022 will undoubtedly lead to attempts to revise EU legislation and regulation next year. International tax reform: At least three draft EU tax directives are due to be published. The first will give legal expression to the 15% minimum effective corporation tax rate for larger multinationals. The second will concern public disclosure of minimum effective tax rates in the EU by companies that fall under the OECD agreement’s scope. The third concerns allocating limited taxing rights to the countries where a corporate entity’s market is located. Anti-money laundering legislation: As part of its action plan to prevent money laundering and terrorism financing, the European Commission has published a set of legislative proposals. These include a sixth Anti-Money Laundering Directive and the establishment of a pan-European monitoring authority to coordinate anti-money laundering activities. What is driving this change? The impact of the pandemic: Many businesses in developed economies are receiving government supports to assist them through the COVID-19 pandemic, which has created a need for additional accountability and reporting. In 2022, government will be bigger. Climate change: There is an emerging consensus on the need for robust sustainability reporting standards to be more widely applied in geography and business scope. High-profile audit failure: Recent business failures have brought the audit market, conduct, and regulation into sharp political focus. International crime: There is increasing recognition that organised crime across national boundaries needs to be tackled with anti-money laundering techniques and more traditional policing and enforcement. Tax: There is now a global consensus that large multinationals should be taxed at an effective minimum rate of 15%. The largest corporate entities should also make corporation tax contributions by reference to the location of their markets and where they are established. Governance Increasing focus on sustainability, corporate failures, and technological advances impacting business are driving corporate governance reforms. For example, the European Commission’s sustainable corporate governance initiative will enhance the EU regulatory framework on company law and corporate governance. As a result, we are likely to see increased responsibilities for directors and more requirements for internal controls and supply-chain management in organisations of a certain size. In the UK, we await the Government’s next steps following consultation on restoring trust in audit and corporate governance. In Ireland, the Government is progressing legislation on individual accountability for certain senior management positions in financial institutions. Gender balance on boards The Irish Corporate Governance (Gender Balance) Bill 2021 proposes that 33% of a company’s board must be female after the first year of its enactment, rising to 40% after three years. If enacted, it would apply to limited and unlimited companies, charities, and all state-sponsored bodies. There would be a few exceptions, such as partnerships and companies with fewer than 20 employees. Gender pay gap reporting New to Ireland in 2022 will be the mandatory reporting of gender pay gap (GPG) information, initially for organisations with 250 employees or more. GPG is the difference between the total average hourly wages of men and women in an organisation regardless of their roles or seniority. It is different from equal pay, which measures if men and women are paid the same for performing work of equal value. GPG is an indicator of whether men and women are represented evenly in an organisation. Regulations will set out details of the reporting and publication processes. Leading on purpose November saw the launch of Evaluating Trust in the Accountancy Profession, a report by Edelman for Chartered Accountants Worldwide, of which the Institute is a member. Based on a survey of 1,450 financial decision-makers, 80% of whom are non-accountants, the report reveals an opportunity, if not an expectation, that Chartered Accountants take the lead on purpose-led initiatives such as driving action on sustainability and diversity, equity and inclusion. Commenting on the report, Ronan Dunne FCA described it as a call to action for Chartered Accountants “to broaden the base of trust”, building on their ethical reputation and professional standards. CEOs are now expected to have opinions on societal issues. This is an opportunity for Chartered Accountants to be influential in establishing the ‘citizenship’ of corporates, advising industry leaders on the integration of purpose with strategy and planning. Technology and the accountant Societal issues are not the only fundamental factors broadening the role and value-add of the accountant. Technology is also a driver of change. Writing in this magazine, Aoife Donnelly FCA and Thady Duggan FCA have argued that, accelerated by the pandemic, and as more traditional finance tasks are automated, the emphasis will be on maximising the impact of digital technology, enabling a shift from a past focus to a future focus. A future focus involves changes in the accountant’s skillset to include: data analysis (at least an understanding of the fundamentals of data analytics to be able to challenge specialists); communicating insights from the data; data governance and assurance; horizon-scanning and innovation; collaboration across the organisation, as well as working with multidisciplinary teams on defined fixed-term projects; and applying technology to support these contributions. The rise of the social enterprise Reflecting the emphasis on purpose and linked to sustainability, 2022 will see the resurgence of the social economy. COVID-19 caused people to pause and reassess their priorities and values, and some entrepreneurs are recycling into social enterprises. Social entrepreneurs bring momentum to the emerging circular economy. They reflect new ways of thinking about business, focusing on digital innovation, diversity and inclusion, and transparency – a magnet for Gen Y and Gen Z. They also influence the future development of mainstream corporations. Social enterprises like Food Cloud, connecting retailers with charities to donate food, need appropriate advice and sources of finance that match their broader societal objectives. Working 3:2 Assuming it is safe to return to the office, ratios like ‘3:2’ will feature as hybrid (or blended) working becomes a reality, at least for those who can work from home. The remote working forced by the pandemic has been a positive experiment in trust. In many sectors, productivity was maintained, even improved. So it makes sense to retain the discovered benefits, including flexibility, which employees now expect to be ‘baked in’. However, the start-up challenges for hybrid working should not be underestimated. There is little precedent, though we can learn from sectors where staff have not been able to work from home during the pandemic. An experimental, patient approach is required from all. New ways of working will be designed. They will distinguish between what we need to do in person, where the focus will be on high-impact interaction (innovation, performance conversations, organisational change), and what can be done remotely. The workplace will be physical and digital in equal measure. The purpose of the office will be redefined, reflected in its layout. New risks include the potential inequalities of a two-tier system of those present in person and those not. Training will be needed for the management of blended teams. Digitalisation Not all work can be done remotely, and not all employers can afford the IT for staff to work from home. There is an opportunity for Government to support the digitalisation of businesses to make the hybrid transition and continue the roll-out of work hubs. Tax and remote working To adapt to this new reality, tax rules must align with remote working practices and fairly reflect the costs of working from home, allowing a tax deduction for expenditure on equipment used for remote work purposes. In addition, an employee’s ‘normal place of work’ should be based on where they carry out most of their work. Childcare The lack of affordable childcare for working parents came to the fore during the pandemic, particularly when schools closed. In an economy crying out for talent, working parents should be encouraged to engage fully in the workforce, or at least have the choice. From September 2022, new funding of €69 million will be available for childcare providers to ensure the sustainability of services. However, it remains to be seen if this first step will have the desired effect of controlling fees. Talent and the ‘perfect storm’ ‘The Great Resignation’ may encompass employees who are resigned to stay in their current roles as well as the millions of people worldwide reported to be changing jobs or who plan to. In any case, for 2022, a ‘perfect storm’ is predicted when increased demand for talent meets the post-COVID phenomenon of career change. There are tools employers can use in recruiting and retaining talented people: offering remote/hybrid working and flexibility; budgeting time for regular conversations with individuals about how they feel about their work; delivering on the ‘employability contract’ – the expectation to learn new, marketable skills; and a strong and empathetic employer brand. Arguably the best way to recruit and retain the best people is to show leadership with values and purpose. Michael Diviney is Executive Head of Thought Leadership at Chartered Accountants Ireland.

Ambrose Shannon explains how CFOs can play a lead role in limiting the future impacts of climate change during what he describes as “the decade of action”. Throughout the summer of 2021, heat waves, wildfires, droughts, and hurricanes served as stark reminders that we should not take our planet for granted. The recently published report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) has made it very clear that unless immediate and large-scale actions are taken to reduce greenhouse gas emissions, these weather patterns, and the corresponding commercial impacts, will only become more severe. In Ireland, like elsewhere, companies are looking at their own commitments to environmental, social and governance (ESG) objectives (see sidebar) encouraged by both regulatory initiatives and wider societal pressures. For example, the Climate Action and Low Carbon Development (Amendment) Bill 2021 is intended to achieve net-zero carbon by no later than 2050 throughout the entire Irish economy. This entails the introduction of five-year carbon budgets on a rolling 15-year basis. In China and South Korea, where similar measures have been deployed, companies have seen significant impacts on their business models, strategies, and performance. Furthermore, the required Local Authority Climate Action Plans are expected to set out ambitious measures to significantly increase renewable energy production, decrease transport emissions, and reduce the impact of agriculture on the environment. Irish businesses have a critical role in achieving this climate-driven transition. And CFOs can play a pivotal role in areas such as leading strategic reviews, allocating capital investment, securing funding lines, protecting credit ratings and driving sustainable business performance. According to Accenture’s 2021 report, CFO Now – Breakthrough Speed for Breakout Value: 73% of respondents claim that the CFO is best placed to ensure the resilience of the organisation in today’s operating climate; and 68% of CFOs globally are now responsible for ESG monitoring and reporting. And momentum is accelerating. In November, the United Nations Climate Change Conference of the Parties (COP26) will bring world leaders together to accelerate movement toward the goals of the 2015 Paris Agreement. We expect agreement on ambitious goals, meaning that politicians, policymakers, regulators, and investors will need to work together with businesses to deliver on ESG objectives. Failure to act on climate change represents an existential risk to society and the global economy and poses a clear financial risk to businesses themselves. The impetus for business to act is time-sensitive and will likely be driven by four key factors: Governments setting legally binding emission reductions and net-zero targets; Investors and financiers wanting to understand climate-related financial risks and long-term business model viability; Employees placing increased importance on the ESG values and actions of their employer; and Customers placing ever more importance on the sustainability of the products they consume – with many seeking “champion brands”.  For business to meet these demands, CFOs and executives need to create and operationalise a comprehensive ESG strategy. Key considerations Regulators have for some time now warned about the threat that climate change poses to the stability of the financial system. Mark Carney, formerly Governor of the Bank of England, is leading a World Economic Forum (WEF) initiative to explore the risk posed to global financial systems associated with the energy transition. According to the Bank of England, as much as $20 trillion of assets could be at risk from climate change alone. The progress of delivery against ESG transition plans varies greatly from sector to sector and geography to geography. A report by Arabesque S-Ray found that just 25% of public companies worldwide are on track to deliver on their ESG-related commitments. Our research and work in this space suggest that CFOs and the wider finance team are uniquely positioned to guide their organisations in the following ways: Assessing the ESG impact on existing business models. CFOs can play a crucial role in assessing and measuring the potential impacts of ESG on current business operations. For example, identifying and modelling risks could include scenarios on the P&L impacts of a 1.5-degree world, the impacts of a higher carbon tax on profitability, the introduction of subsidies, or pricing signals to parts of the supply chain. Highlighting risks associated with ownership of certain assets. It is rational to expect the valuations of certain assets on the balance sheet to fluctuate as we progress through the transition towards net-zero. For example, we have seen large write-downs in valuations among many of the global oil majors. On the other hand, it is equally rational to expect certain asset classes to rise in value, such as those parts of the economy that support the electrification or home insulation agendas. Either way, CFOs will want to avoid holding stranded assets and will need to make more material bets on a more frequent basis over the coming decade. Identifying where investment will be needed to transition to a sustainable economy. Ireland’s transition to a more sustainable future is expected to have a wide-reaching impact on key sectors of the economy. For example, Ibec’s report, Building a Low-Carbon Economy, suggests that Ireland’s electricity and transport systems will need to reduce emissions from 1990 levels by up to 92% by 2050 and that buildings and factories will need to reduce emissions by up to 99%. Decarbonisation needs to go hand-in-hand with technological innovation, and CFOs will play a key role in identifying where investment is needed to ensure that business outcomes are achieved in a way that is economically and environmentally sustainable. Responding to investor demands and attracting investment. In the US, one-third of the $50 trillion of assets under professional management is invested in ESG strategies, according to research by the NewClimate Institute. ESG considerations are increasingly being adopted in assessing the sustainability and risk of investment decisions. At the same time, investors and pension funds are applying pressure on companies to provide products and services aligned with the UN’s Sustainable Development Goals (SDGs). Turning ESG commitments into action. Credibility is not a new concept to finance but is vital in the ESG space. As a profession, we can help our organisations avoid even the suggestion of ‘greenwashing’. Credibility is enabled by robust transition plans with regular and transparent disclosures on progress against them. Some CFOs are investing now to create enterprise-wide data provisioning and analytics solutions for ESG. This will enable them to model multiple commercial scenarios and inform the optimal pace and sequence of the pivot. Conclusion While executing a successful ESG pivot depends upon a strategy that is unique to the qualities and context of the organisation, there are a few best practices you can leverage: Conduct a materiality assessment. These sometimes behind-the-scenes assessments are a data-driven, holistic view of ESG risks and opportunities to identify gaps and prioritise the issues of focus against business and stakeholder importance. Build an effective communication method for the company’s ESG commitments and progress. This typically takes the form of a disclosure with a newly crafted framework and reporting metrics for standalone ESG disclosures, leveraging industry-leading practices. Formalise ESG governance. Stakeholders must be identified as explicitly responsible for new associated ESG activities. The company needs to craft a defined governance model and roadmap for execution, mobilising internal resources and data for ongoing assessment and reporting. These three steps have helped organisations successfully navigate and focus an ESG pivot and capture the associated resiliency and revenue potential. This is the decade of action to dramatically limit the future impacts of climate change – time is of the essence, and the time to act is now. Ambrose Shannon is a Managing Director at Accenture and CFO and Enterprise Value Lead for Ireland and the UK.

People management has been evolving over the generations, paving the way for productive development conversations that benefit both the organisation and the employee, writes Michelle Halloran. There has been a gradual sea-change in the role of the people manager over the last few decades, but it has taken a global pandemic to catapult us into a new way of working. Now, as we optimistically enter the post-pandemic world, it is time for a radical break with the past, to ditch our outmoded perspectives on people management and take a hard look at the role of the 21st-century people manager. From the top down, organisations must stop pretending that managers with staff reporting to them can perform a fully loaded, 40-hour-a-week job, with a bit of ‘HR soft stuff’ thrown in on the side. Organisations need to start budgeting – in terms of time and money – for the investment required for their people to properly function and perform well in the new world of hybrid working. Old habits die hard Many of us have inherited a view of ‘people management’ involving uniform nine-to-five working hours, little flexibility, a strict dress code, and the expectation of often-unquestioning respect and compliance. Structured, objective performance management and review processes are a relatively new replacement for the once-a-year ‘quick chat’ to be told whether or not you were going to get the much longed-for pay rise. Your boss was typically a white male in his forties or fifties – benevolent when you did well; strict and disciplinarian when you did not. This model of people management has its roots in the traditionalism of the generation born from 1928 to 1944, at a time of economic hardship, when the old class system was still prevalent, and you respected authority unquestioningly. Evolving workforce generations The ‘Baby-Boomer’ generation (born 1945 to 1964) wanted much more from their working lives. They had learned from the experiences of the previous generation, seeing them gain very little in terms of improved quality of work and life in the post-war years, despite their sacrifices. However, while they may have done some hell-raising in their youth, and instigated the beginnings of a more equitable society, by the time they hit their mid-twenties, most were settled down and working even harder than their parents in evolving white-collar roles – you didn’t have to be American to buy into the American Dream. While their style and tone were less formal, and there was a shift in the gender balance at work, they (male and female) continued the patriarchal style of people management. Generation X (born 1965 to 1979) threw down the gauntlet in the area of gender equality, and achieved some real change in terms of family-friendly working hours. They also introduced and implemented performance management in the workforce, a concept driven by increased global business competition, where pay was linked to the achievement of targets, and an employee review was conducted once a year at which an employee’s rating was discussed and explained. Then came Generation Y, or the ‘Millennials’, (born 1980 to 1994). Since 2016, ‘Gen Y’ has comprised the majority of the workforce; therefore, knowing how to lead and motivate them is vital to the success of any people manager. The first ‘digital natives’, with access to vast resources of information and opinion, they do not unquestioningly accept what their boss tells them. With businesses driven hard to compete by rapidly advancing technology and globalisation, Gen Y has to work smarter, harder and faster than any previous generation. To maintain this level of productivity – adapting to unprecedented levels and speed of change – today’s employees need a lot of time, emotional sustenance and practical support from their managers, without which they will feel let down and move on to another employer. The early indications for Generation Z, born after 1994, are that they view being an employee and having their own professional ‘gigs’ on the side as not being mutually exclusive. Understanding how precarious job security can be, they are emerging as self-reliant and flexible but needing at least as much emotional support at work as Gen Y. The 21st-century people manager As a 21st-century people manager, your language and approach needs to move away from performance reviews towards ‘development conversations’, or even, simply, ‘check-ins’. These should be planned and scheduled. The more frequently you, the manager, make these calls, the shorter they will be, as they become part of a running conversation between you and your team member. This is especially important in a hybrid work environment where we cannot avail of ad hoc, informal conversations as we could pre-pandemic.  Allocate roughly a day a week into your schedule to have these employee check-ins. These should be strategic, not tactical conversations, with the emphasis on how the team member feels they are performing and coping with their work. This discussion must sit outside other routine discussions and communications about what needs to get done. In Table 1, I set out a suggested plan for managing development conversations with each of your team members (reporting to you as their line manager), outlining the frequency and purpose of each conversation, and useful questions to ask. (Quarterly and monthly meetings can encompass weekly check-ins as they fall due.) The business case So, you may be asking, if I am going to spend all this time talking to my team members, helping them to perform, how do I get my own job done? I can’t afford to spend a day a week on employee development conversations! Well, you can’t afford not to. There is extensive research on the positive impact of proper employee engagement on profitability and productivity. For example, a comprehensive report published by Gallup in 2017, involving meta-analysis of 339 research studies across 230 organisations in 49 industries and 73 countries, found that business or work units in the top quartile of employee engagement outperformed bottom-quartile units by 10% on customer ratings, 17% in productivity and 21% in profitability. Work units in the top quartile also saw significantly lower staff turnover, theft, absenteeism, and fewer safety incidents and quality defects. Taking as the baseline Gallup’s 21% increase in profitability as a result of higher employee engagement, if one day per week is allocated for people managers to have development conversations with their team members, costing 20% of the organisation’s people managers’ time, the impact on profit will be positive. Further gains and savings are available from increased productivity and customer satisfaction, lower staff turnover and absenteeism, reduced wastage, higher quality adherence, and so on. The business case for allowing people managers time to manage their people is clear. Human nature being what it is, however, such change will be resisted, despite the pressures from the generational transition outlined and the recent acceleration towards complex, individually tailored working arrangements. An organisation could introduce such change through a pilot scheme, evaluating results after 12 months using metrics like internal and external customer satisfaction, team productivity, absentee rates, staff turnover and quality of output. Budgeting time for people management is a change in approach that is long overdue. We have the motive – a more profitable business and a happier place to work – and with the shift towards hybrid working, we now have the opportunity. Michelle Halloran is an independent HR and people management consultant.

Bríd Heffernan provides an update one year after the Monitoring Group issued its proposed reforms to international standard-setting boards. In July 2020, the Monitoring Group issued its much-anticipated paper outlining reforms to the international standard-setting boards – namely, the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA). This article will reflect on the reforms proposed in the July 2020 Monitoring Group paper and analyse where the reforms stand one year on. The journey so far The Monitoring Group is a group of international financial institutions and regulatory bodies committed to advancing the public interest in international audit standard-setting and audit quality. The last set of reforms faced by the standard-setting boards were agreed to in 2003 by the International Federation of Accountants (IFAC) and the Monitoring Group. These 2003 reforms created the Public Interest Oversight Board (PIOB), which was tasked with increasing investor and stakeholder confidence in the standard-setting boards and ensuring that standards are responsive to the public interest. The 2003 reforms put IESBA and IAASB under the oversight of the PIOB, thus making them independent of IFAC. This, in turn, led to IFAC providing support to the standard-setting boards. The proposed July 2020 reforms do not change this structure, but they do propose changes to address the Monitoring Group’s concerns. Effectiveness reviews were built into the 2003 reforms. Every five years or so, the Monitoring Group conducts an effectiveness review and makes recommendations to improve the system. In the early reviews, the recommendations were made and agreed upon, and enhancements were implemented. However, the most recent review in 2015 resulted in the 2017 Monitoring Group consultation paper. Since then, there has been extensive discussion between the Monitoring Group, IFAC and other stakeholders culminating in the issuance of the July 2020 Monitoring Group paper. Monitoring Group concerns The July 2020 Monitoring Group paper titled Strengthening the International Audit and Ethics Standard-Setting System set out recommendations for reforming the standard-setting process. Below is an overview of the Monitoring Group’s main concerns that led to the recommendations, which are also discussed later in this article. The public interest is not given sufficient weight throughout the standard-setting process. Stakeholder confidence in the standards is adversely affected as a result of the perception of undue influence of the accountancy profession on the following two grounds: IFAC’s role in funding and supporting the standard-setting boards and running the nominations process; and Audit firms and professional accountancy organisations providing the majority of standard-setting board members. Standards are not as timely and relevant as they need to be in a rapidly changing environment. IFAC’s response As IFAC operationally runs the standard-setting boards, the Monitoring Group’s concerns and recommendations directly impact IFAC. In an update to its members, IFAC’s Chief Executive, Kevin Dancey, stated that IFAC was focused on agreeing on a workable set of changes that would enhance stakeholders’ trust and confidence in the standard-setting process. These reforms also provide an opportunity for IFAC to address its own issues with the current process, which are: That PIOB members are almost exclusively from a regulatory background. IFAC believes that the PIOB should have a multi-stakeholder composition and perspective. That the PIOB must be more transparent, and there is a need for clarity on its role and the role of the standard-setting boards and how the PIOB carries out its mandate. 2020 recommendations  The July 2020 Monitoring Group paper proposals retain the two standard-setting boards with the same mandates, and they will be retained in a similar size (16 members, down from 18 members). The respective roles of the PIOB and the standard-setting boards are also clarified. The Monitoring Group’s proposals clarify that the standard-setting boards are responsible for developing, approving and issuing the standards. The role of the PIOB is oversight. Combined with making the workings of the PIOB more transparent, this is a step forward. Responsibility for ensuring that the standards were responsive to the public interest was a source of confusion in the past. Was this the responsibility of the standard-setting boards or the PIOB? The July 2020 Monitoring Group paper contains a public interest framework, which confirms that it is the standard-setting boards’ responsibility to certify that the standards are responsive to the public interest. The PIOB will also have to certify that the standards are responsive to the public interest as part of its oversight function. Both the PIOB and the standard-setting boards will have a multi-stakeholder composition. For the PIOB, this means that its members will not simply be representatives of the Monitoring Group members. And for the standard-setting boards, this will ensure a diversity of views at the standard-setting table. Recognition of the significant role of both IFAC and the accountancy profession is a key improvement over the 2017 consultation paper. Current practitioners can still become members of the standard-setting boards, up to a maximum of five practitioners. Impact of the changes on IFAC With respect to IFAC, its ongoing role has been acknowledged in the July 2020 Monitoring Group paper: IFAC will continue to provide operational support to the standard-setting boards, the only difference being that it will be set out in a formal service level agreement. IFAC’s role in adopting and implementing the standards, promoting the standards, and monitoring their adoption and implementation has been acknowledged as an important ongoing responsibility. There will be a change to the nominations process for IAASB and IESBA members, however. The process is currently run by the IFAC Nominating Committee, which is chaired by the IFAC president. To ensure adequate independence in the nominations process and ensure good governance, the July 2020 Monitoring Group paper recommends that the nominations process sit under the supervision of the PIOB. The legal structure will also change. Currently, the standard-setting boards are committees of IFAC. The July 2020 Monitoring Group paper calls for the standard-setting boards to sit under a separate legal entity, independent to IFAC. Furthermore, changes have been recommended to the staffing model for the standard-setting boards. The proposals call for an increased staff complement and for staff to have greater responsibility for drafting the standards with less responsibility in the hands of the standard-setting boards. Since IFAC provides operational support for the standard-setting boards, this request for an increased staff complement will impact IFAC. Transition planning phase It was assumed by many observers that, with the issuance of the July 2020 Monitoring Group paper, all would be known. However, five years after the initial review, the reform process is only at the end of the beginning, seeing as many of the details remain unresolved. According to IFAC, the July 2020 paper is a significant improvement on the proposals outlined in the 2017 consultation paper. It is evolutionary rather than revolutionary. It sets out several high-level recommendations and principles that can be worked with. Right now, IFAC and the Monitoring Group are in the transition planning phase of the reforms – but many outstanding items must yet be worked through. The transition planning phase consists of IFAC and the Monitoring Group developing an implementation plan by participating in 26 workstreams. The goal is to work through all outstanding issues and finalise the recommendations in 2021. The implementation of the recommendations will then take place over the next three years, up to 2024. The changes will be phased in to ensure a smooth transition and no disruption to the current standard-setting process. Funding of the reforms  It is clear from the July 2020 paper that there is no new funding model. The profession’s resources were stretched before COVID-19, and this limitation will be exacerbated post-pandemic. This represents a significant fiscal constraint on implementing the reforms. IFAC’s funding for 2021 is down 13.5% from 2018, and there is no improvement anticipated in the funding outlook beyond 2021. Therefore, a key challenge is to reconcile the cost of the Monitoring Group’s recommendations to the funding available. Next steps As noted, the process is currently in the transition planning phase. The goal is to resolve all outstanding issues in 2021 while reconciling the cost of the recommendations to the funding available and reaching a deal on the phased implementation of agreed changes by 2024. While there is a long way to go before the reforms are implemented, it is positive to see progress that ultimately serves the public interest. Bríd Heffernan is Associations & Institutions Leader at Chartered Accountants Ireland.

David Swinburne outlines the practical considerations for members as they prepare to deal with the Small Company Administrative Rescue Process. With the much-anticipated legislation for the Small Company Administrative Rescue Process (SCARP) ready to be enacted, it will be interesting to see how the process evolves. SCARP aims to rescue struggling businesses that form the backbone of the Irish economy – small and micro companies. These SMEs provide the greatest number of jobs in Ireland. The process, by and large, mirrors the successful examinership process, which has been around for 30 years. However, the costs associated with SCARP are expected to be significantly lower than those associated with examinership. Under SCARP, there is no automatic involvement of the Court. Therefore, the costs associated with legal representation for both the company and the examiner are not applicable. Under SCARP, a company does not have protection from its creditors. However, there is the comfort that the Court is there should it be required. Of course, if recourse to the Court is required, costs will increase. What should a company or its external accountant be doing now? In a typical examinership case, there is invariably some event that occurs at very short notice or an unforeseen shock that pushes the company into insolvency. This, in turn, leads to an urgent application to Court for protection and the appointment of an examiner. Thus, the process for the duration of the examinership becomes a pressure cooker. For SCARP to be successful, planning at a very early stage and engagement with an insolvency practitioner (known as the ‘process advisor’ under SCARP) is vital. The insolvency practitioner will need to quickly assess whether or not the company is a suitable candidate for SCARP. The company can only be a suitable candidate if it has the prospect of survival, which means that it must be viable. Before commencing the SCARP process, the company will therefore need to determine (in as far as it can) that there is a strong likelihood that it will emerge successfully out the other end. For this, it must have a viable core business and source sufficient financial resources to fund the SCARP (if its creditors are to be settled immediately instead of over a period of time). The company’s stakeholders will want certainty on the outcome for them. This will form their decision as to whether or not they will support, and therefore vote in favour of, the SCARP. Fail to plan, plan to fail Early engagement with an insolvency practitioner will also allow them to identify creditors that are likely to be more challenging to deal with in the SCARP due to the complexity of the contractual relationship between such a creditor and the company. Such creditors may include landlords and others to whom the company has more onerous obligations. These creditors can be dealt with under SCARP (subject to their consent). However, if the issues are likely to be difficult to resolve, an application to Court may be required. Identifying such creditors before the process begins will be crucial in setting out the options and, consequently, the further anticipated costs that may arise in dealing with them. Based on recent applications before the High Court, it is evident that the Court will want the company to endeavour to engage with creditors and attempt to resolve difficulties before bringing the matter before the Court. Therefore, the Court should not be the first port of call in resolving issues with any creditor. Excludable debt The possibility for State creditors (with a particular focus on Revenue, which is likely to be a creditor in any SCARP scheme) to opt-out of the process has generated mixed reactions. In my experience, however, Revenue is not a blocker. Instead, it is – and will continue to be – supportive of company restructurings, whether informal or formal (i.e. SCARP or examinership). For Revenue to take such a supportive stance, the company and its directors will need to have a compliant and transparent record in their dealings with Revenue. Therefore, companies must continue to meet their Revenue filing obligations – even in circumstances where the company has warehoused debt and is not in a position to discharge its ongoing taxes as and when they fall due. Directors’ duties Under SCARP, there is a requirement for the process advisor to report any offence to the Director of Public Prosecutions (DPP) and the Office for the Director of Corporate Enforcement (ODCE). It is therefore vital that all directors act honestly and responsibly at all times. When will SCARP cases commence? There is a view that as long as COVID-19 State supports are in place, companies will not succumb to the pressure that they may face after the removal of all State supports. However, not all Irish entities are receiving State support. And those that are not are heavily reliant on their trading partners to discharge their obligations to ensure their own survival and future success. Formal insolvencies are at an all-time low. Given the impact of the last 17 months on the economy, you would expect insolvencies to have increased, not decreased. There is no doubt that the various extensive State supports, coupled with payment breaks and holiday periods from other key creditors and stakeholders, have ensured the continued survival of businesses that would otherwise have run out of cash. As the ‘new normal’ continues to be rolled out and we all adjust and adapt, creditors will be forced to become more active in their efforts to collect cash and recover amounts owing. This is when a company becomes vulnerable in terms of its future survival and direction, as its creditors start to take matters into their own hands. Control in terms of survival will quickly switch from being with a company to its creditor(s). Therefore, as highlighted above, early engagement with an insolvency practitioner and an assessment of SCARP as a credible option is a must. Time-frame The end-to-end time-frame for a SCARP is much shorter than examinership (70 days versus 150 days), which means that much preparatory work will take place before the SCARP is formally kicked off by the directors via a resolution and the appointment of the process advisor. Getting difficult and challenging creditors onside is time-consuming. If certain creditors are unlikely to be supportive before the commencement of the SCARP, it is more likely that they will object to it. This will result in an automatic application to Court to seek approval for the SCARP, which impacts the certainty of the outcome for the company, its employees, and its consenting creditors. What should I do next? If one of your clients is struggling now or is highly likely to struggle in the future, or you own or lead an SME that is eligible for SCARP (see sidebar), you should consult now with an experienced insolvency practitioner. David Swinburne FCA is an insolvency practitioner and Advisory Partner at FitzGerald Legal & Advisory, Cork. SCARP eligibility An SME will be eligible for SCARP if it satisfies two of the following three criteria: Turnover of up to €12 million; A balance sheet of up to €6 million; and/or Up to 50 employees.

The need for structured, robust, and reliable business intelligence has mushroomed in recent years. As an increasing number of businesses grapple with the issue, Paul Cullen  explains the critical elements for implementation success. Data volumes within businesses have increased dramatically in recent years, primarily driven by cloud-based data solutions. Many companies struggle to harness this data in a way that enables them to focus on the key drivers of their success and to know if the strategies they have executed are having the desired results. Proper and well-planned implementation of a business intelligence (BI) solution can give management the real-time information they need to maximise commercial opportunities and ensure organisational coherence to deliver on agreed performance metrics. Why Excel just doesn’t cut it for BI Accountants have always loved Excel, and it still has a pivotal role as an analytics tool. However, when it comes to flexible reporting and giving end-users the ability to dive beyond the headline numbers to get to the ‘why’, Excel falls short in several key areas: Model maintenance headaches: in a 50-tab reporting workbook, any change to the layout can be very time-consuming (and often error-prone). I frequently encounter client reporting workbooks riddled with errors because one sheet has a misaligned row, which results in an incorrect aggregated summary. The dreaded invisible F2 edit: how many times have you spent hours pouring over an Excel workbook trying to figure out why the individual tabs don’t agree with the summary, only to eventually discover that someone has keyed in a manual F2 edit in a cell? Distributabilty: so you have built this all-singing, all-dancing Excel reporting pack, but it’s 70MB and cannot be shared via email. You also realise that some information needs to be segmented so that specific users can only see select slices of the data. These issues usually mean that multiple Excel models must be maintained, amplifying the risk of error and potentially compromising data integrity. Limits on row numbers: Excel’s sheet row limit has increased to one million in recent years. While this sounds more than adequate, you can easily exceed this limit if you include transactional data. Housing data in this way within Excel will usually result in slow, large file-size models. Usually dependant on one key user: there is typically only one key person who knows how to run and maintain a reporting model. Therefore, reporting quality, outputs, and cycle time rely to a worryingly large degree on one individual. The need for structured, robust, and reliable BI has mushroomed in recent years. As a result, dedicated BI platforms like PowerBI, Tableau, Qlik and ZapBI have evolved to address these shortcomings and provide analytics visualisations and end-user self-service reporting that goes far beyond Excel’s capabilities. Key obstacles to getting good BI Master data Many finance professionals underestimate just how unstructured their data is. I often hear clients say: “Yes, but we use NAV/Dynamics 365, so our data is really good”. They often fail to understand the inconsistencies across the company in how transactions are coded or recorded by staff. These inconsistencies make life difficult when you need to connect transactions across different platforms. For example, say you want to connect salary data for an employee from an HR system with data in a time-recording system. The employee ID is, say, PCULLEN250 on the HR system but CULLP on the time-recording system. This is just one example of the data-mapping tasks that must be undertaken for BI to succeed. I have seen this to varying degrees in every BI project I have delivered because, for many years, siloed teams have had their own ways of doing things. They simply didn’t realise that there would be a future requirement to bring all this data together at a transactionally-connected level. Historical processes or ways of working The ways in which your teams have historically coded transactions on source systems will almost certainly present challenges in initially setting up your new BI platform. I once worked with a ship management group with 1,000 ships under their control. Management wanted to get to ‘vessel profitability’, and we knew that cost allocation would be a challenge due to the complexity of the company’s operating structures. However, we were surprised to find that revenue for each vessel wasn’t available from the ledgers because the company issued just one monthly invoice to each carrier, even though some had more than 50 vessels under management. Furthermore, payroll costs for vessel crews were recorded by office location, not by vessel. Both of these historical processes gave rise to significant re-analysis work and new process design to enable the required analyses. Similarly, one healthcare client wanted to understand their profitability by treatment type. They believed that everyone across the more than 100 clinics they owned used roughly the same few hundred treatment type codes. In fact, there were over 6,000 live treatment codes in use and in some instances, clinics could even create their own codes at will. So expect to change some of your ways of working as a result of embarking on a BI implementation. How far back to go? Once it becomes clear to key stakeholders just how much insight a good BI implementation will bring, there is typically a desire to have as much history loaded into the model as possible. This is often the case where the company is private equity-owned, or a sale is planned. My advice here is the old 80/20 rule. Yes, it might be nice to see this new level of insight going back five years. But if your company is one of those where a lot of re-analysis will be required, you have to ask: is it worth it? I instead recommend that older historicals should, where possible, only be incorporated in aggregate. You should then ensure that the new data processes are designed and implemented so that future analytics are both robust and reliable. How often is too often? When implementing a BI platform, the next consideration is how often the data and outputs should be refreshed. It’s tempting to think: “Great, I can see what the sales team are doing every morning and then follow-up to discuss what’s going on”. However, this approach can quickly create a situation where staff have to spend time each day figuring out what just happened. And this, of course, can lead to ‘paralysis by analysis’. Be judicious about how often BI data should form the basis of a trading or operations conversation, and otherwise use it to indicate the company’s direction of travel. Introducing a new performance management BI tool will initially strain your executives and managers as they sift through a deluge of new and revealing information. This takes me to the following consideration: the need for culture change if a BI solution is to work correctly. Warning! Culture change approaching Imagine you are a sales or production manager, and you wake up to a new, live, web-based BI portal that shows everyone in your organisation where things might not be going so well on your patch. Senior management must avoid using the BI solution to shame or berate colleagues. Instead, it should be seen as a tool to identify opportunities and enhance performance across the business. Tread carefully here and avoid the ‘big bang’ approach of rolling out BI. You want your teams to embrace this new way of working, not run away from it or, worse still, seek to discredit it. With all this new performance management data at your fingertips, you may wish to consider redesigning your legacy compensation and bonus systems to ensure that these insights drive the right behaviours across the organisation. Embedding a robust BI solution in your organisation can be the catalyst for undoing the traditional silo mentality that can arise when different functions perform to their own narrow targets. Factors affecting implementation speed The following four issues will affect the length of time it takes to build and roll out your new BI platform. Poor data mapping: it is critical to understand how different naming conventions are used across your systems. You should conduct a thorough data-mapping audit to ensure that independent systems can be bridged on common field names (by employee ID, customer ID, or product ID, for example). Doing this during the development of the BI solution is time-consuming, but products like Caragon Flex can make the process much more manageable. Organisational readiness: prepare your team for the effort required to clean up your data and, more importantly, how this information will be distributed and reviewed once it is live. Having a new suite of detailed analytics can be overwhelming for data consumers if it is not clearly understood what it will be used for. Also, inform your colleagues that they are not expected to understand every data point that surfaces in the reports. Absence of a project champion: projects that should take weeks often take months due to the lack of an internal project champion. It is vital to appoint one and empower them to ‘herd the cats’ to ensure the project is delivered on time. Unclear output requirements/moving targets: consider what you want to get out of the new BI platform and be ruthless in identifying the key reports and key performance indicators you will need at the outset. Solution providers will typically build a proof-of-concept model to illustrate the art of the possible. This is a good time to agree on the minimum requirements for Phase 1 – but don’t bite off more than you can chew. Some processes must change As the earlier examples show, digging deep on data to build robust processes across multiple systems will invariably highlight process weaknesses that, if not remedied, will compromise the integrity of any BI platform. Therefore, it is essential to understand at the outset that go-live and the ultimate success of the project will be contingent on staff being adequately trained in the new ways of working. This might, for example, mean retraining payroll staff on payroll coding so that the correct costs are tagged to the relevant activity. Similarly, invoicing processes may need to change to ensure that revenue can be appropriately tagged to achieve the desired level of reporting granularity. You should also introduce tighter controls on crucial data fields across your systems (customer codes, product codes or employee IDs, for example). In my experience, this is best achieved by having a data governance standing group, to which all data changes (or new data field creations) must go for approval and communication to other potentially affected users. In conclusion A BI implementation is an exciting journey for a company. To get the most from it, here are my top four tips: Appoint a data champion and BI steering committee to ensure the project both gains and sustains momentum, and the business is prepared for what’s coming. Take the time to fine-tune your data mapping processes. Phase your BI roll-out in bite-size chunks to avoid overwhelming the organisation. Create a sense of ‘new frontiers’ within the business as it embarks on its data-empowered journey. Paul Cullen FCA is CEO at 1Truth, a Belfast-based management information solutions provider.

Aoife Donnelly and Thady Duggan explain how the role of the chief financial officer will evolve as digital change continues apace. As chief financial officers (CFOs) continue to take on more responsibility for strategy and execution, and for the sustainable future of the enterprise, they must build technology strength to unleash breakthrough speed. Doing so is the way to drive breakout value across the business. Accenture’s recently published report titled CFO Now: Breakthrough Speed for Breakout Value identified themes common to a select group of CFOs who deliver significant value to their organisations. We found that, aided by digital transformation, the pace of change is greater than ever before. This was further accelerated by the pandemic, with 79% of CFOs surveyed compelled to ramp up organisational transformation due to the effects of the past year. As chief executive officers (CEOs) embrace speed by accelerating their digital transformation, they turn to finance for guidance. The pace at which finance can support business leaders in real-time is critical and has resulted in the accelerated adoption of digital technologies in the finance function. CFOs said that 60% of their traditional finance tasks have been automated in our CFO Now research, up from 34% three years ago.  Some CFOs are delivering real value from their digital transformation. Our research identifies several key characteristics of these ‘winners’ – finance teams that can provide the business with insights to drive transformation with speed and agility. Economic guardians Compared to their predecessors, the breadth of responsibility and expectation faced by today’s CFO is increasing. To thrive with this increased responsibility, the finance function must transform itself to enable CFOs to support the rest of the business effectively. The pace of technological change in recent years has opened opportunities within finance. Huge strides have been made to optimise processes, maximise the capabilities within existing enterprise resource planning (ERP) systems, and implement other technology enablers. However, this is using today’s technology to fix yesterday’s problems. Timely, accurate, and complete reporting is important, but it should be considered a mere hygiene factor for a high-performing finance function. The business needs informed guidance to navigate the present and anticipate the future, not comfort for the past. That’s where the most significant shift is occurring in the role of CFOs as economic guardians. High-performing finance functions can and should provide predictive insights, but less than half (43%) of CFOs surveyed have used advanced financial modelling in the past two years to identify future risks and opportunities. How can CFOs be economic guardians if they don’t have a perspective on what tomorrow will bring? High-performing CFOs use internal and external data with advanced models to better understand leading indicators of demand well ahead of trends that might show up in the company’s profit and loss account. Others, however, are not sure how to maximise the benefits of digital transformation – only 21% of CFO Now respondents have used operational data to identify new sources of value, and only 20% have used macroeconomic data to support their forecasting. Cloud architectures offer a whole new world of possibilities to the CFO, allowing for much faster decision-making. Yet, only 23% of CFOs use the cloud to provide new insights and only 16% use it to identify new sources of value. Combined with this data and technology utilisation comes a renewed focus on aligning and nurturing talent within the finance function. According to Accenture’s latest CxO Pulse Survey, 75% of CFOs believe that their company is on a course to redesign how people work and reinvent their culture to support new behaviours and mindsets. CFOs understand that finance professionals can’t be left out of this talent revolution. Our CFO Now research shows that they are acting by re-prioritising the skills needed in their functions. Traditional finance and accounting skills are still important but, along with general management skills, are now among the lowest priorities. The top skills being actively introduced are data exploration and analysis (41%), followed by scenario planning and horizon scanning (38%), innovation (37%), and storytelling (34%). Architects of business value CFOs have always played an important role in the organisation, but they now increasingly influence and direct value creation across the enterprise. This enhanced role requires increased collaboration between the finance function and other parts of the organisation, with 86% of CFOs surveyed increasing the frequency and scope of collaboration across the C-suite. The current pandemic and the strains it has placed on business has changed mindsets at the C-suite level, turning what was once a competitive environment into a more collaborative one that enables the CFO to deliver on their expanded role. Leading CFOs understand the power of technology to support these efforts and take appropriate action to ensure that they play a significant role in any major technological decisions. Indeed, 72% of respondents said they have the final say on the technological direction of the enterprise. Catalysts of digital strategy The modern CFO needs to champion digital transformation across the enterprise to support the central theme of our research – breakthrough speed for driving breakout business value. Outside their own function, there are three key areas where the impact of digital strategy are most striking. Business models: our research shows that 41% of CFOs are driving new business models within their organisations. That’s a great start, but it still falls short of the 72% of CFOs who thought their business would need to completely re-think processes and operations to be more resilient in the face of impending disruption. Throughout the past year, organisations had to reconsider their business model and its resilience for the future. Irish companies have used this crisis as an opportunity to reassess their ambitions, using the shift to digital to re-evaluate their global ambition and identify business lines, markets, and other opportunities that were not considered possible before. Security: the most cited barrier preventing CFOs from realising their full potential as drivers of strategic change was concern about cybersecurity. Yet only 28% of finance professionals are engaged in managing risk through data security to a meaningful degree. In many organisations, chief technology officers and chief risk officers report to the CFO. Given this responsibility, it is incumbent upon the CFO to better understand and become more actively engaged in data security. Environmental, social and governance criteria: one striking finding from our CFO Now research was the extent to which CFOs are seen as responsible for their company’s environmental, social and governance (ESG) policies. In fact, 68% of respondents said that CFOs take ultimate responsibility for ESG performance within their enterprise. Driven by the growing concern about the global climate crisis, Irish CFOs are also trying to understand their role in any future ESG reporting requirements. The impact on the finance function The role of finance within the organisation is evolving and expanding. The enterprise expects more, and at greater speed, from the finance function. To deliver this, the function must change. One enabler of this change is the accelerating adoption of digital technologies. This impacts the speed and type of finance activities being performed. Leveraging technology to perform more of the mundane tasks allows the CFO and the finance function to spend more time planning, analysing, and advising on the growth agenda, thereby better serving the enterprise’s changing needs and expectations (see Figure 1). Given this shift, a significant change in the skills being introduced to the finance function makes sense. CFOs know that their teams must gain insights from data and then, crucially, communicate these insights to the business. In conjunction with the shift in the type of work performed by finance teams, the composition of the workforce is also changing with fewer people using more technology to deliver better insights (see Figure 2).  The combination of enhanced capabilities within finance, improvements in technology enablers, and the explosion in data offers an amazing opportunity. To maximise the benefits from this digital transformation, the finance operating model must evolve (see Figure 3). Corporate: group-level functions, the scope of which differs from entity to entity but may include activities such as finance governance, tax strategy, treasury strategy, investor relations, internal audit, and others of a similar nature. Intelligent finance operations: the engine room where both transactional and non-transactional finance activities such as purchase to pay (P2P), order to cash (OTC), record to report (RTR) and significant components of management reporting take place at scale to maximise technology enablers. Business unit finance: direct support to the business, often in the form of finance business partnering, operational planning, and forecasting. Working closely with other teams within the finance function and the business to provide actionable insights to the business unit. Centre for value optimisation: instead of having static groups working on the same thing for months at a time, we see teams with multidisciplinary skills assembling for several weeks to take on short-term projects with defined goals and outcomes. Once work is completed, these teams then disband and new teams with different members tackle the next initiative. These teams are not finance-specific and will typically include non-finance partners. The work they do is supported by the data and analytics hub, where they work with experts to develop recommendations for business leadership. Data and analytics hub: the hub has the dual responsibility of ensuring the veracity of finance data and augmenting the teams in the centre for value optimisation with data scientists, who run multiple models to prove or disprove hypotheses. If the value optimisation squads are the ‘brains’ of the function, the data and analytics hub is the ‘heart’, pumping much-needed blood in the form of data to provide the brain with the fuel required to do its magic. Many of our Irish clients have established the first three components of this operating model. However, they are only starting to fully investigate the potential benefits of multidisciplinary teams that use a single source of truth to identify opportunities and drive insights. What does this mean for Chartered Accountants? The remit of the finance function will continue to expand, and its influence will grow in the coming years. 76% of respondents claim that the pandemic highlighted the valuable role finance teams played in feeding early warning insights to the CFO. Finance will become even more critical to future success as it delivers data-driven insights and guidance at speed. However, to do this, CFOs need to consider all the capabilities within the finance team and any potential future capabilities that may be required. Here are three things to consider. Become more technology-savvy and data-savvy. Become technology-savvy to enable finance leaders to make informed decisions on the organisation’s technology strategy; to understand the tools that can optimise the processes in the function and allow leaders to manage teams in which these tools perform a significant portion of the activity. And become data-savvy to understand the opportunities presented by data to make informed decisions that can drive profitable growth; to understand the fundamentals of analytics to challenge the insights generated by analytics teams, if not actually being part of those teams. Get better at communicating financial insights to non-finance leaders. As the role expands and continues to become less about reporting prior financial performance and more about identifying future opportunities for the business, finance leaders need to convert analysis into a compelling story that business leaders can understand and act upon. Consider how to train and upskill the whole team. The shift to a technology-enabled, data-driven finance function is becoming even more pronounced. Trainee and newly qualified Chartered Accountants must gain enough exposure to ‘traditional’ finance activities to understand the fundamentals of finance management while working in a function where these traditional finance activities are increasingly being automated. This is a challenge that must be solved in the years ahead. Aoife Donnelly FCA leads Accenture’s Finance Strategy & Consulting practice in Ireland. Thady Duggan FCA is a Senior Manager in Accenture’s Finance Strategy & Consulting practice in Ireland.

Barrie O’Connell considers how Ireland can achieve continued success in international financial services after three decades of momentous growth. As a semi-senior auditing investments and subscriptions in the offices of Chemical Bank on Lower Abbey Street in the late 1990s, I knew little of the influence international financial services (IFS) would have on my career as a Chartered Accountant. Ireland has built a thriving IFS industry over the last three decades. This success can be measured using several metrics, some of which are outlined in Table 1. So, what are the factors behind this success? In my view, Ireland’s strategic approach and talent have been the two key enablers. Chartered Accountants have played – and will continue to play – a key role when it comes to talent. The ‘Ireland for Finance’ strategy In 2019, the Government of Ireland launched the Ireland for Finance 2025 strategy. The strategy was developed by the Department of Finance, with input from a range of stakeholders, and is part of the current Programme for Government. It contains four pillars: Operating environment; Technology and innovation; Talent; and Communications and promotion. The Ireland for Finance 2025 strategy is aligned with other key Government strategies, including the National Development Plan and the National Digital Strategy. A refresh of the strategy will likely be undertaken after the COVID-19 pandemic to account for the permanent impact on the future of work, the changing operating environment, and the intense competition from other IFS investment locations. Each year, the Department of Finance also publishes an action plan and an update on actions. This allows each action to be measured and provides accountability, as each action has an owner. The IFS team within the Department of Finance plays a significant role in supporting the strategy’s implementation. There is also a dedicated Minister of State for IFS at the Department of Finance, which ensures continuing focus on the sector. Coincidentally, the current Minister, Sean Fleming TD, is a Chartered Accountant. Operating environment Ireland has enjoyed great success as an IFS location for a long time. With new entrants relocating here due to Brexit, there is the prospect of more to come. This will remain the case while there is uncertainty around UK firms’ ability to achieve financial services equivalence and, thus, access to EU markets post-Brexit. However, the environment for IFS is increasingly competitive. Industry participants continually face pressure to optimise their business by delivering new and innovative products and exploiting process and location efficiencies. They must deliver on these issues while serving their customers’ needs and ensuring the global financial system’s continued stability. The industry is more technology-intensive than ever, and artificial intelligence (AI) and automation present both opportunities and challenges for Ireland. We must continue to position ourselves as a location that is open to providing an innovative, supportive, and dynamic environment for companies that seek to leverage our expertise and history in technology and financial services. After COVID-19, other countries will redouble their efforts to attract investment. As IFS is a mobile sector, Ireland must be agile and adapt quickly to the new environment. The IFS sector has been remarkably resilient over the last year, and I am impressed by how the sector adapted to remote working and continued to deliver for customers. This resilience is a key differentiator, and the collective ability to solve issues gives Ireland credibility and trust in a global marketplace – something that is noted internationally. Track record The IDA and Enterprise Ireland have both contributed to the development of the country’s IFS industry. I am continually impressed by the IDA’s work with overseas companies and Enterprise Ireland’s work to create opportunities for indigenous companies to operate successfully from Ireland. Indeed, these organisations are the envy of many other countries globally. Irish Funds is another excellent example. It works relentlessly at an international level to promote Ireland as a funds location, and the quality of the content at its events is compelling and demonstrates some of the best qualities of ‘Team Ireland’. Meanwhile, the European Financial Forum, usually hosted in Dublin Castle, was hosted virtually this year. It is another superb showcase of what Ireland offers in IFS to companies operating globally and is supported by an effective regulatory environment with a fully independent Financial Services Regulator. The development of the “IFS Ireland” brand has been a crucial first step in building an integrated offering across different sectors. We must now market Ireland with consistency and in new and innovative ways.  The secret sauce Ireland’s key asset is its people and talent. Ireland has a well-educated, highly-skilled, flexible, internationally diverse and multilingual workforce. Our demographics are favourable, with 33% of the population less than 25 years old and over 50% of those between 30-34 holding a third-level qualification. Chartered Accountants’ skills and attributes are a good fit for this sector, and I am aware of so many Chartered Accountants Ireland members who have cultivated successful careers in IFS – not just in Dublin, but throughout Ireland. The executive and senior management teams in IFS in Ireland, many of them Chartered Accountants, are a vital ingredient in our competitive advantage. They advocate with head office, look to develop and grow the offering based in Ireland, and are prepared to manage global operations from Ireland – and often exceed expectations when they do. Many have very senior global roles in large IFS organisations, and we don’t always acknowledge them and their relentless focus on expanding their organisation’s footprint in Ireland enough. For example, the recently announced acquisition of GECAS by AerCap, headquartered in Dublin, is a fantastic transaction that demonstrates Ireland’s position as a world leader in aviation finance. Caution needed Now is the time for Ireland to redouble its efforts. Some commentators suggest that the future of work will alter the relationship between talent and location, but I am inclined to challenge this hypothesis. In my view, where the executive and senior management teams are based will continue to be a key consideration for an organisation’s location. With accelerating disruption and digital transformation impacting the IFS sector, Ireland must be aware and adapt accordingly. In the coming years, protecting existing jobs may well be as important as growing the number of those employed in the sector. Ireland must therefore invest in education and training to ensure that workers stay relevant and productive and harness the strengths of Ireland’s technology sector to position Ireland as a leader in technology-based financial services and platform development. Chartered Accountants Ireland’s FAE elective in Financial Services is a welcome development in this regard. Action Plan 2021 The IFS Action Plan 2021, which is available to download at www.gov.ie, outlines several priorities in this regard, including sustainable finance and fintech. These areas have huge growth potential and present an opportunity for Ireland to take a leadership position globally. Sustainable finance and environmental, social and governance (ESG) criteria are strategically important to all companies. It is fitting that the Minister highlighted both as critical areas of focus for 2021 and beyond. Ireland’s recently enacted Investment Limited Partnership (ILP) legislation was an objective in the action plan for several years and has the potential to deliver significant growth in the private equity area. The Central Bank of Ireland also issued a stakeholder engagement consultation in recent weeks, and this will be a key focus for the 2021 action plan. Cause for optimism IFS is a vital element of Ireland’s overall economic strategy. Like all strategies, the strategy for IFS must be continually reviewed and adapted as the world evolves. Given our talent, flexibility, and drive, there is much cause for optimism while resisting complacency. It is incredible to see what started in the IFSC now present in every corner of Ireland, from Killorglin to Letterkenny. Yes, IFS in Ireland will need to change, adapt and continue to improve. But for newly qualified and experienced Chartered Accountants alike, the opportunities in IFS are almost limitless. Go and explore them for yourself. Barrie O’Connell is Partner in KPMG and Chartered Accountants Ireland’s representative on the Ireland for Finance Strategy 2025 Industry Advisory Group.  

The coronavirus pandemic accelerated the journey towards the fourth industrial revolution and new threats emerged in the process. Business leaders must therefore think about cybersecurity in a new way, writes Dani Michaux. Over the past year, we have seen significant geopolitical changes driven by the impact of COVID-19, forcing organisations to strengthen their resilience. The realisation has also dawned that the world as we once knew it has changed. Amid all of this, I see a new and very different operating model emerging for business. That new operating model is based on various restructuring activities, accelerating digitalisation initiatives, alternative partnership models, and a sharper focus on core activities. As organisations pivot, it is essential to reflect and consider the risks that may emerge as part of these organisational changes. What do the changes mean for the organisation, its supply chain partners and players, connected industry, government, and broader society? One prominent challenge is the need to safeguard the new digital ecosystem, which underpins this transformation, from cyberattack and information infrastructure breakdown. The world kept turning in 2020 During the early part of 2020, we saw an increased number of CEO identity frauds, payment frauds, ransomware attacks, and crude attacks on insecure cloud services. As the year grew old, we saw more complex attacks targeting supply chains, major cloud environments, remote working applications, security product providers, and even critical infrastructure services. This time last year, we claimed that cybersecurity is key to achieving the fourth industrial revolution. COVID-19 has accelerated that revolution and the use of digital and cloud technologies in both the public and private sectors. Those technologies are now fundamental to our society. Sadly, the pandemic has also shown that organised crime is opportunistic and ruthless in exploiting events to gain financial advantage. Thus, we witnessed a steady stream of high-profile cyberattacks on private enterprise, government, and social media platforms during the year. It is nevertheless encouraging to observe the pace at which organisations rolled out robust digital infrastructure during difficult times and the collaboration between business, technology, and security teams to safeguard these rapidly deployed services. It illustrates how these often-siloed parties can work together effectively to introduce secure innovation at market speed. COVID-19 has propelled Chief Information Security Officers (CISO) into a new dimension. Suddenly, they must manage thousands of home-working sites, personal devices, and a rapid shift to the cloud. The CISO has moved from securing corporate IT boundaries to a broader view of enterprise security. The timescale for many cloud migration projects has collapsed from years to months in the race to meet fast-changing business needs. Hyperscale cloud providers are increasingly dominant and intently focused on security. To succeed in the future, security teams must: Reskill employees to reflect the split of responsibilities between enterprise and cloud-service providers; Adapt to agile development methods and new digital channels; and Enact these innovations while cloud security skills attract a premium salary as the global job market competes for much-needed talent in 2021. The rise of supply chain attacks Political and business leaders have become alert to the global interdependence of many critical functions and the nature of risk that cross-border supply chains have. The pandemic made these murky operational and systemic risks real and gave people pause for thought. Supply chain attacks are not new. However, in the new highly digitalised and interconnected world, they are becoming more prominent. Frequent attacks raise concerns about organisations’ ability to remain resilient. We have seen several prominent cases over the past few years. Examples include the Target cybersecurity attack, where a network intrusion may have exposed approximately 40 million debit and credit card accounts; a global cyber-espionage campaign known as ‘Operation Cloud Hopper’, which formed part of a shift to target managed service providers; a worldwide campaign against telecommunications providers called ‘Operation Soft Cell’; and the latest cyberattack on Solarwinds, a global provider of network management solutions. A common theme in these attacks is the presence of third-party providers of hardware, services, or software. In complex infrastructure, set-ups that include rapid pivoting to new environments and dependencies on third-party suppliers are both common and intimate. Third-party providers are targeted with the ultimate aim of reaching a bigger mark. The methods and duration of the compromise vary, but there are some common patterns. These include exploiting speed and rapid deployment challenges and looking for exposures in security controls as firms shift rapidly to new technology. Of course, smaller organisations within the supply chain may also attract greater attention, based on the assumption of reduced sophistication and scale of security operations. Lessons can be learned from sectors like oil and gas, where human safety is at the top of executive agendas and assumptions are challenged continuously. It starts from the proposition that you cannot assume that anything will work in the event of an explosion. For example, a company might have a procedure to pre-book hospital beds for casualties, but what happens if the hospital doesn’t have a burns unit? What happens if the ambulances can’t get to the site of the explosion? These things have to be planned for in advance, requiring creative paranoia and a certain mindset. That’s the type of culture of resilience that should be in place in all organisations. It is a question of overall operational resilience, not just the resilience of IT systems and security. In this complex world, organisations should address the following practical questions: 1. Understand the risks and dependencies in the supply chain. Here are some questions to ask: What are the threats and exposures associated with third-party access to your environments, services, and products? Do you have contractual agreements in place with clear service level agreements concerning expectations around cybersecurity? Are you in a position to monitor those, including supplier activities? Do you monitor exposures and cyber risks associated with the supply chain and discuss these issues as part of an ongoing agenda within the organisation’s management and risk committees? 2. Understand the full extent of the supply chain within the existing environment and any changes arising from new digitalisation initiatives. Here are some questions to ask: How has the profile changed based on the rapid digitisation, restructuring and transformation initiatives in place? Do you have a view further down the supply chain (to fourth- and fifth-party providers, for example)? 3. Make arrangements to respond to supply chain cyberattacks collectively. Here are some questions to ask: Are there any mechanisms in place? Have you exercised these? Has the organisation included lessons learned from previous attacks? How has the organisation adapted based on the lessons learned from incidents? Are any other improvements required? Stepping into the future As we look to the future of highly digitalised and scalable environments, resilience will be paramount and non-negotiable. Organisational resilience will rely heavily on the stability of the end-to-end supply chain. However, it will also require a new approach to data security. The hunt will be on for cybersecurity orchestration opportunities, robotic process automation around manual security processes, more integration with key IT workflows, and new managed service and delivery models. Third-party security may also need new models for more dynamic risk management and scoring, including better tracking of supply chain stresses. Of course, assessments such as SOC 2 and ISAE 3402 will play a growing role as firms seek to provide evidence once to satisfy myriad client questions about cybersecurity. However, we can also expect to see the rise of ‘utility models’ where intermediary organisations aggregate client assurance requirements to undertake a one-size-almost-fits-all assessment of suppliers’ cybersecurity. This is already happening in the UK with the support of financial regulators. Over the last few years, firms have also sprung up offering risk scoring services based on a scan of a firm’s internet-facing services. They also monitor for data disclosures in the shady corners of the internet and alert customers to a potential supplier problem that they may not be aware of or are yet to disclose. Large companies will often ask these risk-scoring services to monitor hundreds of suppliers. As the outsourcing of non-core business services accelerates, it is worth asking: do you pay sufficient attention to your dependency on third-party actors who are now integral to your security and resilience as a business? As we look to the future, organisations will need to move on from thinking exclusively about enterprise firewalls, anti-virus software, and patching policies. Instead, they will need to consider approaches to security. This begins with the premise that a company’s success is based upon its reputation, which is ultimately a manifestation of the trust others have in its offerings. This mindset leads companies to embed security into products and services, but it also focuses attention on protecting customers, clients, and those increasingly important supply chain partners. It emphasises stewardship of the trust they place in you when they share their most sensitive data or show their willingness to become dependent on you. No organisation is an island, and all of us are part of an increasingly hyperconnected world. In that world, trust in supply chains and ecosystem partnerships matters more than ever. Dani Michaux is Head of Cybersecurity at KPMG Ireland.

Neil Hughes outlines the survival options for small- and medium-sized businesses as the ‘next normal’ approaches. In general, 2018 and 2019 were good years for Irish business. Many companies entered 2020 with stronger balance sheets, relatively low debt levels, aggressive growth targets, and optimism – particularly in the small- and medium-sized enterprise (SME) sector. By Q2 2020, however, firefighting due to COVID-19 restrictions quickly soaked up all available management time and resources. Growth strategies were shelved, and survival was prioritised. Government supports were immediately made available to companies severely affected by the pandemic. Figures released by Revenue in February 2021 show that the State paid out a total of €9.3 billion in 2020 between the Pandemic Unemployment Payment (€5.1 billion), Temporary Wage Subsidy Scheme (€2.8 billion) and the Employment Wage Subsidy Scheme (€1.4 billion). Seventy thousand companies have availed of the Revenue Commissioners’ Debt Warehousing Scheme, at a total cost of around €1.9 billion. These supports, along with the forbearance provided by financial institutions in Ireland, have helped prevent a tsunami of corporate insolvencies. The concern, however, is if post-pandemic those companies that ultimately need help the most will not reach out and avail of the supports and processes available. Overcoming the stigma It is regrettable that, historically at least, the use of formal corporate insolvency mechanisms to restructure struggling businesses has been viewed quite negatively by the Irish business community. The inference is that such businesses were somehow mismanaged when, in reality, this was often not the case. Companies can fall into financial difficulty for various reasons. Factors outside the control of company directors can necessitate a formal restructure rather than the terminal alternative of liquidation. Now, in the middle of a pandemic, a previously successful business operator, through no fault of their own, can find themselves saddled with an unsustainable level of debt and risk becoming insolvent. While government support measures were necessary to prevent widespread corporate failures and potential social unrest, for many companies, these actions may have simply delayed the inevitable and kicked the can further down the road. In most corporate insolvencies, there is an expected level of pressure for money that the company does not have, which precipitates a formal restructure. This pressure has been temporarily released, but the creditor strain will inevitably build again when trading resumes. ‘Zombie’ companies Low insolvency numbers for 2020 are therefore misleading. There is anecdotal evidence to suggest that several companies have ceased trading, have no intention of reopening and, in some instances, have handed the keys of their premises back to landlords. However, these ‘zombie’ companies are not included in the insolvency statistics, as they continue to avail of government supports and will be wound up whenever the supports end. While helpful, the subsidies and supports do not cover the entire running costs of a business, and many companies continue to rack up debt as their doors remain closed. These debts may seem insurmountable, but there is hope. The Great Recession vs the COVID-19 crisis This current recession is in stark contrast to the ‘Great Recession’ that resulted from the banking crisis of 2008. Back then, there was a systemic lack of liquidity in the market due to the collapse of Ireland’s banking sector, which left SMEs with little or no access to funding. This time, there are several re-capitalisation options with banks (including the new challenger banks) in a position to provide funding, especially through the Strategic Banking Corporation of Ireland (SBCI) Loan Scheme. Many private equity funds are also willing and ready to invest in Irish businesses. After the pandemic All the while, the Government can borrow at negative interest rates to stimulate growth and recovery. With the vaccine roll-out, we are starting to see the light at the end of the tunnel. This begs the question: what will happen when the pandemic is over? There are several key points to note: Consumer behaviour: it is reasonable to assume that a large portion of the population will revert to normal. This could generate a domestic economy similar to the rejuvenation that followed the Spanish Flu pandemic of 1918 and the end of the First World War. There is certainly pent-up demand and savings (deposits held in Irish financial institutions were at an all-time high of €124 billion in late 2020). Unfortunately, a portion of society will change their consumer habits forever due to COVID-19, which will have a detrimental effect on businesses that find themselves on the wrong side of history and unable to survive the recovery. Government action: how the Government reacts will have lasting repercussions. Difficult and unpopular decisions are likely required to pay for the ever-rising cost of the pandemic and its restrictions. Such choices may result in an increase in direct and/or indirect taxes, with less disposable income circulating in the economy. The UK Government has already made moves in this direction with its 2021 budget. The Revenue Commissioners: Revenue’s intended course of action is currently unclear in relation to clawing back the €1.9 billion of tax that has been warehoused or how aggressively it will pursue Irish companies for current tax debt after the pandemic is over. Early indicators are that Revenue will revert to a business-as-usual strategy sooner rather than later. Banks and other financial lenders: the attitude of Irish banks and financial institutions to non-performing loans remains to be seen. Banks have been accommodating to date and worked with, rather than against, borrowers – a criticism levelled against them in the wake of the 2008 banking collapse. Personal guarantees provided by directors to financial institutions to acquire corporate debt, particularly in the SME sector, will have a significant bearing on successful corporate restructuring options. The attitude of landlords: landlords in Ireland are a broad church, ranging from those with small, family-operated single units to large, multi-unit institutional landlords or pension funds. Landlord-tenant collaboration is essential for stable retail and hospitality sectors, and in the main, rent deferrals were a foregone conclusion during the various lockdown stages of the pandemic. However, these rent deferrals still have to be dealt with. The attitude of general trade creditors: in certain instances, smaller trade creditors in terms of value have been the most aggressive in debt collection and putting pressure on businesses to repay debts as soon as their doors reopen. Companies with healthy balance sheets and those that managed their cash flow prudently will be the ones to come out the other side of this pandemic when the government supports subside. Businesses will need time to: Assess the post-pandemic consumer demand for their products and services;  Assess their reasonable future cash flow projections; Agree on payment arrangements for old and new debt; and Make an honest assessment of whether they will be able to trade their way through the recovery phase. For those who have been worst hit, however, all is not lost. Ireland has some of the most robust restructuring mechanisms in the world, with low barriers to entry and very high success rates. The fallout can be mitigated if company directors take appropriate steps. Restructuring options When it comes to successful restructuring, being proactive remains the key advice from insolvency professionals. Too often, businesses sleepwalk into a crisis. Options narrow if there has been a consistent and pronounced erosion of the balance sheet. Those who act fast and engage with experts have the best chance of survival. 1. Examinership There are various restructuring options available, but examinership is currently most suitable for rescuing insolvent SMEs. The overarching purpose of examinership is to save otherwise viable enterprises from closure, thereby saving employees’ jobs. In 2019, liquidations accounted for 70% of the total number of corporate insolvencies in Ireland, and examinership only accounted for 2% of the total. It is plain that a higher portion of those liquidations could have been prevented, jobs saved, and value preserved if an alternative restructuring option like examinership had been taken. There are only two statutory criteria for a company to be suitable for examinership: 1. It must be either balance sheet insolvent or cash flow insolvent. It cannot pay debts as and when they fall due; and It must have a reasonable prospect of survival.  The rationale for examinership in a post-pandemic environment is therefore clear. Companies saddled with debt will likely meet the insolvency requirement, and historically profitable companies that have become insolvent due to the closures associated with the pandemic will pass the ‘reasonable prospect of survival’ test. Once appointed, the examiner must formulate a scheme of arrangement, which is typically facilitated by new investment or fresh borrowings. The scheme will usually lead to creditors being compromised and the company emerging from the process solvent and trading as normal. 2. The Summary Rescue Process One of the main criticisms levelled at examinership is the perceived high level of legal costs required to bring a company successfully through the process. To address this perceived issue, in July 2020, An Tánaiste, Leo Varadkar TD, wrote to the Company Law Review Group (CLRG) requesting that it examine the issue of rescue for small companies and make recommendations as to how such a process might be designed. The CLRG’s reports in October 2020 recommended the ‘Summary Rescue Process’. It would utilise the key aspects of the examinership process and be tailor-made for restructuring small and micro companies (fulfilling two of the following three criteria: annual turnover of up to €12 million, a balance sheet of up to €6 million, and less than 50 employees). Such companies constitute 98% of Ireland’s corporates and employ in the region of 788,000 people. A public consultation process is now underway to finetune the legislation. Here is what we know so far about the Summary Rescue Process: It will be commenced by director resolution rather than court application. It will be shorter than examinership (50-70 days has been suggested). A registered insolvency practitioner will oversee the process. Cross-class cramdown of debts will be possible, which binds creditors to a restructuring plan once it is considered fair and equitable. It will not be necessary to approach the court for approval unless there are specific creditor objections. Safeguards will be put in place to guard against irresponsible and dishonest director behaviour. A proposed rescue plan and scheme will be presented to the company’s creditors, who will vote on the resolutions. A simple majority will be required to approve the scheme. The Summary Rescue Process will be a huge step forward. The process of court liquidation has been systematically removed from the court system in recent years in favour of voluntary liquidations. This new rescue process will bring a similar approach to formal restructuring, allowing SMEs greater access to a low-cost restructuring option akin to a voluntary examinership. It will give more hope to companies adversely affected financially by the pandemic that options exist for their survival. Neil Hughes FCA is Managing Partner at Baker Tilly in Ireland and author of A Practical Guide to Examinership, published by Chartered Accountants Ireland.

Dr Joanne Murphy has researched the Northern Ireland business community’s experiences in facing the challenges of the Troubles to make life as normal as possible for their customers. It is perhaps timely to listen to their voices and reflect on the crucial role businesspeople play in fostering and maintaining peace. “We had a door in the bar that squeaked, and I used to think that sometime in my life, that door will squeak and my stomach won’t tighten – I’ll not have that fear in me. The first year was just like hell.” These are the words of a publican I interviewed, reflecting on his first years in business at the start of the Troubles. While much has been written about this period, few existing accounts reflect the business community’s experience of living and working through violence. From my research in Northern Ireland, the Basque Country, and Bosnia on how leaders and managers adapt to and function in environments of conflict, I have identified four common characteristics among those who share such experiences: The fear, countered by courage, experienced in running a business against a background of the threat and reality of violence; The ability to continue to make decisions in the ‘grey zone’ of an environment where a clear good or positive outcome is often not possible; An acute understanding of the political dynamics at play at a community level; and An ability to seize the business opportunities presented by political change and evolution. Fear and courage It is easy to forget that in violent environments, experiences are visceral. An experience repeatedly shared by business owners I have interviewed is one of living with fear and the need for the courage to confront it. In the case of Northern Ireland, many have described how the disruption and street violence of the civil rights period quickly descended into the chaos of full-blown conflict and its impact on what had been a stable, albeit divided, business environment. A pharmacist with a business at the centre of a market town described the early years of protest and trouble: “When the demonstrations and counter-demonstrations started, we would have had to lock the doors because there were fights bouncing off the windows. It progressed on to the bombing and incendiaries.” As the conflict progressed and periods of violence became more intense, low levels of intimidation sometimes became active threats. The same pharmacist recalled frightening days in 1981: “During the hunger strikes, we got a slip of paper through our letterbox saying ‘When Bobby Sands dies, you close for the funeral’… but we didn’t close and there were three of them that came in about 9.30am. I knew one of them… ‘You’re not closed?’, they said, and I said ‘No’. And they said ‘Are you going to close?’, and I said ‘I’m not. I prayed for Bobby Sands at mass this morning. I prayed for his family. I don’t think he should have taken his own life’. So then, they went out, and about ten minutes later, the phone rang. ‘If you’re not closed in half an hour, you’ll be dead.’ I sent the two staff home – there weren’t many customers about, but I did the rest of the day myself. And I can assure you that every time the door opened…” With towns and cities encircled by barriers and security forces, the economic impact was devastating. Interviewees talked about losing half their business when towns were gated to protect them from bomb attacks, deterring casual shoppers. Even with this difficulty, there were consistent attempts to stay positive and open for business. A shop owner reflected: “The way I looked at it, you had to think of the people that took the trouble to come to you”. Undoubtedly, there was a personal impact on people’s peace of mind and mental health. One business owner reflected on a particularly difficult period. “There were times you would drive into work, the mountains so peaceful above you, and I’d think ‘I’d just love to drive on and walk in those mountains’. I’m a very calm person, but I remember the whole front of the shop was blown out with a bomb, and we had to barricade it up and lock it with a chain and a padlock. One day I couldn’t get it open with the key, and I just kicked it down… not like me at all.” The resilience to persevere through fear and uncertainty was critical. Decision-making in the ‘grey zone’ In his book, The Drowned and the Saved, Italian industrial chemist and Holocaust survivor Primo Levi wrote about the moral ambiguity of being trapped in an environment of terror, the ‘grey zone’, where moral compromises persist and perfect outcomes are not possible. In such situations, business owners struggle to manage relationships when trust is in short supply and there is acute anxiety about outcomes and the consequences of action. One commented on the struggle to find a middle way: “I didn’t trust the cops, and I didn’t trust the paramilitaries”. Many of those I interviewed spoke about making choices to establish acceptable behaviour norms to mitigate a volatile environment’s worst aspects. For example, a publican described taking a stand about bad language in his bar, despite being personally threatened. The difficulty of such decisions should not be underestimated, and many interviewees were open about the dread such choices entailed. They were also clear about the compromises made to be able to trade successfully. The employment of doormen, for example, could put bar and club owners into morally invidious positions. One observed that while such dilemmas had eased as the peace process developed, doing business still involved engaging with paramilitary elements in local communities. He described how demands from paramilitaries had changed from “You need to employ such and such” to a more conciliatory “If you’re employing doormen, will you employ these doormen and it’ll be completely legit, and you tell them what your rules are, and how you would like to run it?” He concluded: “Most things would work out okay”.  One of the factors that facilitated a move away from engagement with paramilitary elements was a high level of political and community knowledge among business leaders. Initiatives like sponsorship of local sports and youth clubs helped embed relationships in the community and allowed business owners to leverage a wide range of connections, providing a protective mechanism against organised paramilitarism. The grey zone was particularly extended for the business community during prolonged periods of heightened tension, such as the 1974 Ulster Workers’ Council strike when many businesses were either forced to close or closed voluntarily in protest at the Sunningdale Agreement. “During the Ulster Workers’ strike, we dealt with it in a very Irish way. We closed the front door and opened the back.” Such compromises, however, often obscured the very firm line businesspeople drew in the sand. “For anyone who has shown weakness, that’s the road to ruin. And anyone I’ve known who has joined in – let paramilitaries put machines in, laundered money, et cetera – it’s ended in a very bad way.” Understanding the political realities When asked about the knowledge and behaviours necessary to survive and thrive in a politically volatile and violent situation, one businessman observed, “You need to understand the environment very well, and the bad and difficult bits of it. I’ve been involved in low-level mediation, trying to do things behind the scenes, you know, when workers are being intimidated. If someone’s getting hassle, I would try to help because I know people. Knowing people is very important.” One common challenge was discrimination based on community background, religious belief, or political opinion. While much has been written about such discrimination in employment terms, respondents were often keen to relay their experiences of similar dynamics affecting the sale of property and the procurement of services. The boycotting of shops would intensify at times of political tension: the Ulster Workers’ Council strike, the hunger strikes, the Anglo-Irish Agreement and the Drumcree protests were all identified as difficult periods. Many were sanguine about the reality of the underlying community division that resulted in people choosing to do business or give their business to a rival based on community identity. One rural business owner noted the difficulties in buying and selling property, comparing it with the experience of racial segregation in the United States. “I remember being the highest bidder a couple of times on unionist property and it being withdrawn from sale and finding out later it had been sold. But I can understand that because those people had to live in the community. It’s not easy… but if they sell to me, they could be in trouble with their own people. You have to be at peace with your own community. Those who step outside that are very brave people.” Seizing the opportunities of change In 1994, the Confederation of British Industry (CBI) published Peace: A Challenging New Era, which became widely known as the ‘Peace Dividend paper’. It argued that a viable peace process would help spur economic growth, which would help promote peace. This initiative coincided with strenuous efforts to move to a non-violent environment, including John Hume’s ongoing dialogue to move the IRA away from violence. The CBI emphasised that the vast amounts of money being absorbed by the Troubles could be reinvested in education and infrastructure. At a local level, the business community could also sense change. One respondent, a Belfast-based businessman, recalled seeing the opportunity and changing his business strategy – but then having his expansion plans rejected by local funders, who were unconvinced. The idea of moving into Belfast city centre, previously an economic wasteland, closed and cut off during much of the Troubles, was indeed radical. “I decided to move the business to Belfast. I thought, I’ve got to get into the city centre – that was that. I knew that when I went to the centre of Belfast, people would start to come in.” While local entrepreneurs may have sensed that the environment and business opportunities were shifting, support was not necessarily forthcoming from regional business development agencies. The same businessman recalls visiting one such organisation in search of support after he decided to move his business into Belfast city centre. “I outlined my vision. They told me it was never going to work. It was a very short meeting, and I haven’t forgotten it.” Others reflected on how they sought to build community relations in various ways, including the employment of ex-combatants. Many also believed that they had the opportunity to give something back and benefit the wider community: “My firm’s ethos and culture is about doing some good here. And, if I’m honest, these things often have a very beneficial business upshot.” For many, the business benefits of peace also sit beside a clear commitment to the region and an investment in its stability and sustained progress. When the conversation with one businessman turned to recent violence by dissident republicans, including the murder of journalist Lyra McKee in Derry in 2019, he was unwavering in his view that a deterioration in the security situation would not impact his commitment to Northern Ireland. “If things got worse, I’d work harder. I’m far too invested in the community here to give up. I feel so blessed that I don’t carry any baggage from the past… I’ve not lost anyone or had anyone injured. I’m lucky in that sense.” The journey to a ‘kind of’ peace in Northern Ireland has been long, and not all stories have been told. We are only beginning to understand the impact local enterprise has on stabilising society and building accord, but the experiences of those who worked through difficult times stand as a testament to their resilience and the need to build on progress. Dr Joanne Murphy is Reader in Leadership & Change at the Centre for Leadership, Ethics and Organisation in Queen’s University, Belfast.

Joanne Hession explains the concept of positive leadership and shares five strategies to help you develop this increasingly vital skill. I remember the financial crisis of 2008. I remember scrambling to try to keep my two businesses afloat. I remember thinking, to paraphrase Seamus Heaney, if I can get through this, I can cope with anything. Across the world, businesses were faced with incredible challenges. It was difficult for everyone. Employees took wage cuts, worked long hours, found new markets, and sought innovative solutions to keep their businesses going until things picked up. Some businesses did not make it while others did. Thankfully, we weathered the storm. Why did some businesses survive while others did not? There are many reasons, but a couple of years ago, I came across research conducted by Dr Fred Kiel in Harvard Business Review (as well as in Dr Kiel’s book, Return on Character). In 2015, Dr Kiel looked at whether business performance has any relationship with the CEO’s character. He asked employees in over 100 organisations to rate their chief executive on integrity, compassion, forgiveness and responsibility. Based on respondents’ feedback, he gave the CEOs an overall score, which he called their ‘character score’. Then, he looked at the return on assets (ROA) of the companies they led to see whether there was any relationship between character scores and business performance. The categorical answer was: yes, there was. The CEOs rated highest for their character score invariably led the companies with the best performance. The five highest-ranked leaders led companies with a ROA of close to 10% over the period. The companies of CEOs with a medium character score had an average ROA of about 5%. Interestingly, the leaders with the lowest character scores had ROA rates of around 2%. For me, this finding echoes the work of psychologist, Prof. Chris Peterson of the University of Michigan. Prof. Peterson carried out an analysis of the common factors among US soldiers who returned from difficult tours of duty with higher resilience levels than others. As he analysed the data he noted that, aside from resilience, soldiers who progressed to leadership positions in the military also had the highest scores on ‘strength of character’ indicators such as honesty, hope, bravery, industry, and teamwork. These traits seemed to be most important in progressing to positions of leadership in the military. This research resonated with me deeply. I have always believed that the most important aspect of leadership lies in character, and both Dr Kiel and Prof. Peterson confirmed this. But more importantly, Dr Kiel’s research demonstrated that positive character attributes directly correlate with better leadership, all the way down to the bottom line. The central point is this: when things are really difficult, as they were in 2008, character is central to how people respond. Little did I know back then just how much more challenging the world would become 12 years later, and just how vital positive leadership would be. The role of influence Leadership is an interesting concept. Ask most people to name a leader and they will invariably choose a CEO, politician or perhaps a team captain. Whatever the context, it will almost always be the person at the top. Bottom-line results are often why one person is chosen over another: X was in charge when Rabona United won the league; or Y was the CEO when Tech Co. Inc. increased its share price three years in a row, for example. There are undoubtedly great leaders among these positional leaders. Yet I cannot help thinking that this notion of leaders as those at the top of their environments misses the point about what leadership is and where we can find it. Leadership is influence. If you influence others, you are leading them. Positive leadership is therefore about positive influence. Whether it is termed ‘authentic’, ‘transformational’, ‘charismatic’ or ‘servant’ leadership, positive leadership is influence that emerges because someone cares, empowers and supports others and because their behaviour or character provides an example that others use to forge their futures. I have been in the privileged position of running several businesses for over 20 years now. As founder and CEO, I have, in a literal sense, led those businesses. But just as importantly throughout those 20 years, numerous others have led me. When one of my staff saw a potential niche market, offering and explaining his findings, I was influenced to change our business direction slightly. When one of our technical experts saw a more efficient way to allow our teams to collaborate, I followed her lead to progress the overall business vision. In purely business terms, I may be founder and CEO, but I am well aware that there are times when my role is to lead, and there are times when my role is to take my lead from others.  This is a liberating and empowering idea. It doesn’t matter what our role is, and it doesn’t matter whether we are running a business or are the newest recruit through the door. Every one of us leads at certain times and follows at others. We all encounter moments every day when our actions, words, or behaviour might influence others. When this happens, others are effectively taking their lead from us, and we are leading them. Equally, we are all influenced by others and, regardless of our seniority, we need to maintain the humility to recognise that leadership is a shared endeavour. When everyone within a business understands that how they act will potentially influence and lead others, and when they are given the space and permission to exercise this leadership role, the benefits are immeasurable. Employee satisfaction increases as strict hierarchical structures gain flexibility; individual ownership and responsibility for behaviour and performance rise; and the sense of mutual collaboration within teams and across departments and functions grows exponentially. Beyond the professional realm, we can be leaders in all walks of life. In our families, we might have children, siblings, or parents who are influenced by us. Among our friends, we are constantly influencing and being influenced. This places a responsibility very squarely on our shoulders – if we are continually being asked to lead, how can we ensure that we are leading well? We all need an understanding of what good leadership should look like. What ‘good’ leadership looks like Good leadership has nothing to do with control or power. We can say that we are leading well only when we have exerted positive influence, whether we are aware of it or not. Even if we are not in a leadership position, we should aim to provide a positive example in how we lead ourselves and potentially influence others in a positive direction also. We cannot force others to follow us; we can only try to behave in a way that others will choose to follow. This means focusing on building our character in order to develop our leadership capacity. As a good starting point in building positive leadership, it is worthwhile to consider five main areas: 1. Reflect on your values. Positive leaders are clear about what they stand for. To develop your positive leadership capacity, you must understand your values. Make this a written exercise. Dig deep. What is it that matters to you? What are the boundaries that you will not cross, regardless of the pressures you might be under? What do you want to contribute to your business, community and family? Take time to reflect on your values because they are the yardstick by which others will measure you, and you will measure yourself. 2. Reflect on your behaviour. Few things are as powerful as seeing someone with deep integrity, who has the courage to be accountable and is willing to stand up for what they believe in. Unfortunately, few of us are as consistent as we would like to be. We all fall below the standards we expect of ourselves occasionally. Allow yourself to reflect regularly on your behaviour in light of your values. Be honest with yourself. Do you have higher expectations of others than you do of yourself? Have you judged others by their actions, but judged yourself by your intentions? Review your actions and behaviour over the previous days or weeks. How do you feel you have lived up to your values? Have you led as positively as you intended? How has your behaviour impacted on your team, colleagues, and those around you? 3. Reflect on your relationships. To influence another, for them to choose to take their lead from us, we must create a real and meaningful connection. People respond to genuine connection. If we want to build our positive leadership, we have to focus on the most basic (but frequently, the most difficult) things: to truly listen to what others are saying; to genuinely understand their perspectives or concerns; to treat everyone with respect and fairness. Assess how you have performed here. What could you do better? 4. Decide how you can improve. One of the most inspiring leadership characteristics is seeing someone who makes the most of what they have and works to maximise their abilities. Unless we learn to give our best and work to improve continually, we have little authority to influence or lead others. When you reflect on your behaviour and identify where you have fallen below your own standards, set yourself a finite and measurable action that will force you to address that shortcoming, even if it is only in a small way. Hold yourself accountable. 5. Repeat. Building positive leadership character is like going to the gym. It needs to become a part of your life to have a meaningful and lasting impact. Don’t try to change overnight. Instead, focus on making the steps above part of the fabric of your routine. Just like ‘peace’, in Yeats’ poem, change “comes dropping slow”, but small actions done consistently can create great change. Joanne Hession is Founder and CEO of LIFT Ireland, a not-for-profit initiative to increase the level of positive leadership in Ireland.