Spotlight

Níall Fitzgerald discusses the ethics and governance issues that arose for boards during 2017, and what resolutions can help in 2018. Corporate Governance is not actually a big thing – it is a lot of little things. The ability to identify relevant issues and give them the right amount of attention before having to move on to the next is a requisite in governance. Every now and then, a big issue comes along and attempts to knock the wind out of your sails. Like a good captain of a boat, your knowledge of the sea and how to work with the elements is as important as your ability to handle your own boat when it comes to dealing with those big issues. While you, as part of a board, should have control of what goes on inside your organisation, you are unlikely to have similar control over the elements or anyone outside of your organisation.  Uncertainty The uncertainty resulting from political absenteeism in Northern Ireland, Brexit, US fiscal policy proposals, and the myriad of less-profiled but very present issues affecting Irish organisations were raised as concerns to Chartered Accountants Ireland in 2017.  Challenges to businesses come in different waves and, ideally, their impact needs to be considered before they happen. It is not always possible to see the big waves coming but dealing effectively with the smaller ones can help us prepare for the larger ones. Boards and management teams that respond well to uncertainty will have: A good understanding of their risk appetite and what risks they are prepared to take (know your vessel and what force it can withstand); Familiarity with maintaining a risk register and designing strategy to respond to and manage risk (the manoeuvres); A robust system that enables flow of information from ground up and vice versa. This includes management information, communication and financial planning systems (the rigging which will largely determine your ability to manoeuvre); and Robust and effective internal controls that facilitate the efficient flow of information while also safeguarding the integrity of the vessel (hull, RADAR, hydraulics and nautical knots). We don’t wait until a storm forms at sea to prepare the boat so, likewise, the board should not wait until a crisis before addressing the above and obtaining a good understanding of the organisations capabilities.  Board effectiveness Board effectiveness has been a hot topic, so it’s unsurprising that it featured prominently in 2017. While a number of challenges were presented, some of the more common issues related to understanding the role of the board, an individual’s own role as part of a board, board structure and problems relating to discussion or conduct at board and subcommittee meetings. In terms of understanding the role of the board or an individual on the board, the increasing volume of board paper contents, complexity or technical nature of matters for decision being brought to the table, and an increasing prevalence or expectation of foregone conclusions were the main problems. These issues have caused conflict, bitterness and mistrust and, in some cases, have resulted in an inability to progress effectively on other unrelated agenda items. When it came to solving these issues, members understood their role on the board within context of their own responsibilities and fiduciary duties but there was a knowledge gap in understanding where the line between management and governance fell.  The following gives a flavour of some of the quick wins identified during discussion of these issues: Board protocols should be enhanced by setting a more defined time-frame for receipt of papers, e.g. a tiered deadline when papers above a certain size are to be delivered to the Board and clear wording of any protocol for exceptions;  Board retention and delegation clauses in the terms of reference should be clarified and communicated; For boards that do not have established sub-committee structure, the Chair should be empowered to establish a specific task force that will address the more technically complex issues in advance of the meeting; Consideration for the need of external expert advice is given before management presents a complex problem to the Board.  The process of continuous improvement is necessary when it comes to optimising board effectiveness, and it’s important all members are bought into the process. Don’t wait for your organisation to enter choppy waters, take action before issues arise within the Board. You need a full and committed crew on board. Debate is healthy but nobody wants a mutiny. Conformance vs performance To quote Albert Einstein, “A ship is always safe at shore but that is not what it’s built for”. One issue that arises in conversation with members is the common occurrence of too much Board time being spent addressing conformance at the expense of addressing the performance of the organisation. To ensure that sufficient time is afforded to performance (including strategy, improving return and productivity, as well as employee and customer satisfaction), the following featured prominently as simple suggestions: Favour reporting by exception Boards should report compliance updates with a focus on instances of non-compliance while also including what corrective action was taken or recommended. This facilitates a discussion more focused on conformance issues that warrant greater attention while also ensuring that there is sufficient time remaining on the agenda to discuss performance and strategy-related matters. Mandatory strategy day  Whether it’s a half day or a whole weekend, it is important for any board, regardless of organisation size, to give this important strategy development exercise sufficient attention. Make it matter  While this includes typical advice such as having the right mix of skills around the table, ensuring important matters are given sufficient time on the agenda, etc, ‘make it matter suggests going further than a board might normally. This includes devising suitable key performance indicators (KPI’s), outside of boilerplate profit and productivity measurements, that provides board with specific performance related information; performing post-mortem reports of recent projects, whether they were deemed successful or not to identify lessons learnt; and devising a performance led agenda that endorses an “outside in” risk assessment, i.e. what are the threats facing the business based on what is happening in the market and trends in other industries and how would the organisation respond.  Reputation Possibly the most important risk to be managed in an organisation is its reputation. Reputation and trust with all stakeholders is essential for running a successful organisation. To avoid the wind being knocked out of your sails, consider the following actions when it comes to protecting the reputation of the organisation. Make sure ethics and organisational culture is a standing item on the agenda. There is so much happening in the current climate in relation to protection of the public interest (e.g. White collar crime and anti-bribery legislation), employee welfare and intolerable work practices that organisations need to assess their own culture to ensure it is a good fit in modern society. It is the Board’s responsibility to keep this in check and set the right tone at the top. The Board should ensure there is a clear and well-communicated speak up policy in the organisation. Encouraging staff to speak up about wrongdoing they encounter in the organisation without fear of reprisal is a powerful and effective detection control and the right thing to do. Make ethics real. Don’t wait for something to happen before taking the time figure out the organisation’s ethics. Like risk appetite, the Board should know their red lines and have a good understanding of what they consider to be unethical conduct.  Conclusion The above insights are a flavour of matters discussed at Chartered Accountants Ireland events, focus groups, briefings, queries and discussions regarding ethics and governance and key board concerns in 2017, and many of the themes were similar: uncertainty and how organisations can create their own certainty by preparing for and respond to it; implementation of a process of continuous improvement is a healthy solution for increasing board effectiveness; a high focus on conformance issues during Board meetings is important but performance decisions shouldn’t suffer as a result; and reputation means a lot to an organisation but requires good character to earn it and deserves attention to protect it. These key takeaways should sail along into 2018 for all organisational boards. Sail safe!

The success of an NGO depends on a board with the expertise Chartered Accountants already possess, says Michael Wickham Moriarty. Non-profit organisations play a major role in Irish society. They generate more than €10.9 billion in turnover annually, 8% of current exchequer funding is channelled through non-profits and organisations described as Section 38 and Section 39 bodies under the 2014 Health Act deliver much of Ireland’s health and social services. Almost a quarter of Ireland’s official overseas development aid is delivered through NGOs. Non-profits are at the forefront of responding to Ireland’s current housing crisis. Chartered Accountants have a lot to offer Ireland’s 19,505 registered non-profit organisations. Non-profits require volunteers to give their time and expertise to act as directors. The non-profit sector has been subjected to both increased regulation and increased public scrutiny in recent years and there is a need for engaged, educated and diligent directors for non-profit organisations of all sizes. Chartered Accountants are trained as experts in financial management and financial reporting, but what they have to offer non-profits goes much further than this. They are trained in company law and are bound by a code of ethics and professional standards. Many Chartered Accountants have developed expertise in areas such as risk management, strategic planning, governance and investment management, all essential for boards of non-profits. Finding the job There are a number of routes for Chartered Accountants who wish to become directors of non-profit organisations. People do get invited to join non-profit boards by peers or through existing relationships with organisations they support, and many non-profit organisations elect their directors from a broad membership base, which members of the public can join.  There are a few ways someone interested can find out about board vacancies. Some organisations openly advertise when there is an opening on their board. Vacancies can occasionally be found on the careers pages of the Chartered Accountants Ireland website, and the Institute of Directors in Ireland also assists non-profits to recruit new board directors. Recruitment services in the charity sector such as Activelink.ie and Charity Careers Ireland advertise board positions (as well as paid, professional roles), and Boardmatch Ireland is a charity which matches professionals to non-profit boards. One effective route for accountants is to first join a board subcommittee as an external expert. Finance and audit committees may recruit volunteer accountants to work alongside board members. This is a good way to learn about the inner-workings of a non-profit without suddenly taking on  the full, legal responsibilities of a company director. Tools and supports   There are a range of tools and supports available for directors of non-profits. The Charities Regulator has recently published a range of guidance documents, such as Guidance for Charity Trustees, Internal Financial Controls Guidelines for Charities and Guidelines for Charitable Organisations on Fundraising from the Public, which can be found on its website. The Institute of Directors in Ireland has also published guidance for directors of non-profits. The Institute offers many CPD courses that can assist directors of non-profits and has a Charity & Non-for-Profit Group for members active in the sector. Non-profit umbrella bodies such as The Wheel and Charities Institute Ireland run events and training relevant to board directors.  For non-profits that have a cross-border structure or are based in Northern Ireland, there is guidance available from the Charity Commissioner for Northern Ireland. The Charity Commission for England and Wales has extensive resources available online, many of which are relevant for directors of non-profit organisations in Ireland. Common pitfalls  There are a number of challenges that frequently arise for directors of non-profit organisations. Many small non-profit organisations may not have the resources to employ full-time accountants or management staff with a comprehensive range of skills at executive level. In such circumstances, it can be tempting for highly-skilled directors to step in and carry out work that should be the function of executive management. It is important to clearly define and document the separate roles and responsibilities of management, and those of the board of directors. Directors should remember the old adage that they should put their noses in, but keep their fingers out. Sometimes board members can over-rely on these finance experts. Boards may appoint treasurers from among their members and they may establish subcommittees such as finance and audit committees to focus on specific areas. However, such structures can never delegate away the responsibility of the board of directors for the sound financial management of the non-profit.  It is vital that all directors understand the financial affairs of the organisation and that they contribute to key financial decisions. Chartered Accountants on boards can assist by ensuring financial reports to the board, such as management accounts are presented in a way accessible to non-financial experts.  The most serious governance failures often occur where one individual or a tight knit group control the organisation over an extended period of time. The board of directors as a collective body should exercise ultimate control over the non-profit instead of a CEO or founder. As unpaid voluntary directors, a non-profit board is heavily reliant on executive management to inform them about the organisation and to implement their decisions. The relationship between the Chair of the board of directors and the CEO is crucial to maintaining appropriate control and delegation. In a well-governed non-profit, this relationship should have some healthy tension. Reporting for non-profits The Charities Statement of Recommended Practice Financial Reporting Standard 102 (Charities SORP FRS 102) is mandatory for UK charities and is considered best practice for charities in Ireland. The Charities Regulator has signalled his preference for this to become compulsory in Ireland in the near future. Since not all non-profits are regulated charities, this accounting standard is not appropriate or applicable to some non-profit organisations. Where it is applicable, directors of non-profits should ensure that the Charities SORP FRS 102 fully is implemented in their financial reporting. In cases of charities where it is not in place, directors should seek a road map for its adoption. Directors should seek that non-profits have a clear objective manner of measuring their success against their aims and objectives and that these should be communicated to stakeholders. There are a range of voluntary and mandatory codes of compliance applicable to sub-sets within the non-profit sector. For example, the Code of Practice for the Governance of State Bodies from the Department of Public Expenditure and Reform applies to many non-profits funded by the Irish state. The Department of Public Expenditure and Reform Circular 13/2014 sets out some of the responsibilities of non-profits in receipt of state grants. Dóchas – the umbrella bodies for overseas aid NGOs – has a Code of Corporate Governance for Irish Development NGOs. In addition, there is a more widely relevant Code of Practice for Good Governance of Community, Voluntary and Charitable Organisations. Directors should understand which codes are most suited to their organisation. They should understand whether these are voluntary or mandatory and they should understand how their organisation measures up against these standards.    For non-profits seeking to benchmark themselves against the highest standards of the sector, there are some annual awards to consider. The Leinster Society for Chartered Accountants runs the Published Accounts Awards and includes categories for non-profits. Separately, the Good Governance Awards is an initiative that recognises and encourages adherence to good governance practice by community, voluntary and charitable organisations in Ireland. Charity umbrella bodies such as The Wheel and Dóchas run awards that recognise the impact of non-profit organisations. Boards should take a look at the calibre of the reporting the winners have displayed and aim to emulate that standard. Conclusion There are many opportunities for Chartered Accountants to volunteer as directors of non-profit organisations and they have so much to offer. These roles come with challenges and the duties are not to be taken lightly. While serving as a non-profit director is unpaid, it can be a personally very rewarding experience.  Michael Wickham Moriarty is the Head of Finance of the Central Remedial Clinic and he is a Governor of the Rotunda Hospital.

Directors must understand the vital role of ethics in establishing the values and behavioural DNA of a board and its organisation. The ethics and values of an organisation are generally formed and espoused by the founders. They can be based on a set of strong beliefs about a particular issue such as ethical beauty products, climate change or a particular way of doing business. Regardless of the starting point, these ethics and associated values will be formative in how an organisation evolves and is run. Ethics and values cannot be painted onto an organisation, however. Ethics  In a business context, ethics involves the exercise of values – such as trust and integrity – which influence and determine the day-to-day behaviours and actions of a company. Embedded values and ethical behaviours are hard-won company assets built up over time that can easily be destroyed by actions that are, or perceived to be, unethical. Ethical behaviour instils trust and empathy. It also enhances reputation, which can in turn improve income by attracting more customers who are attracted by the associated brand. It should in turn mean greater financial sustainability and finally, while good behaviour engenders more good behaviour, the opposite is also true. If you are considering a directorship, whether as a non-executive or an executive director, it is important that you have a good understanding of the ethics and values of a company. If you work in the company, these should be self-evident. If not, it needs to be part of your due diligence. This process can include talking to current and former board members and senior executives. If you would have a difficulty in supporting these ethics and values, then you may want to reconsider whether becoming a board member is right for you. Looking at the same issue from the company’s perspective, during the recruitment process board members should evaluate closely the ethics and values of any potential director against those of the company. The induction and ongoing professional development process for all board members, as well as staff, presents a good opportunity to introduce and reinforce ethics and discuss the company’s values – in other words, what it feels strongly about. Ethics and the role of the board Once you have joined the board or are an existing board member, part of your role will be to ensure that ethics are embedded and exercised in the organisation. Company directors are responsible for setting the ethical standards and values for their organisation, and this is the most valuable asset directors can cultivate within an organisation. If these standards are embedded in the organisation, they will form the bedrock for the company’s future sustainability.  The process of embedding ethics and values is not an easy task, as ethics and values tend to be intangible. Yet, they must be made tangible to staff and customers for them to be real. Therefore, ethical standards and the associated behaviours must be led, developed and disseminated by the board. The board – both as a collective and as individuals – set the ethical tone from the top of the company and must ensure that it becomes part of the DNA of the company. Ethics, values and the appropriate behaviours should permeate every pore of an organisation and be reflected in its mission, vision and strategy. In this context the board’s responsibilities include: Developing, agreeing and documenting the ethical and values framework of the company; Living these values as the leaders of the company; Supporting ethics programmes for staff at induction and on an ongoing basis; and Ensuring that the company lives up to its stated ethical values through appropriate monitoring mechanisms. Ethics in practice The larger the company, the more difficult it is to maintain consistency in the application of values and ethical behaviour. It is unlikely that all staff can be relied upon to react in the same way, particularly where there is significant cultural diversity in the countries in which a company operates. This is why a code of ethics is essential. A well-written code, consistently applied, will minimise uncertainty and raise awareness of ethical issues in the company. The code should help to operationalise ethics and values by developing an associated set of behaviours that will help guide the actions of staff in situations where they may face ethical challenges. For example, a retailer selling clothing in Ireland might have questions over the type of labour and the employment conditions used in developing countries to produce their goods. Similarly, if a company is seen to exploit tax planning to the limit, even though it may be permissible within the tax codes, it may impact on the values and the reputation of the company. Ultimately, good ethical practice should improve transparency, decrease the risk of fraud and reduce the likelihood of reputational damage. A code of ethics A company’s ethics programme should contain the following elements: Code of ethics A code of ethics is a written set of guidelines issued by a company to its management and staff to help them conduct their behaviour and actions in accordance with its values and ethical standards. The communication of the code of ethics is important. It should be included in the induction process for new staff and in staff handbooks. It should also be available online as a staff resource. Training Training in ethical behaviour ensures that all directors and employees know what is expected of them. It helps instil ethics in the culture of the company. Companies should have a person responsible for ethics. For instance, Coca-Cola’s code of ethics is administered by an Ethics & Compliance Committee composed of a cross-functional senior management team. It oversees all ethics and compliance programmes and determines code violations and discipline. The Ethics & Compliance Office has operational responsibility for education, consultation, monitoring and assessment related to the code of conduct. A means to report breaches of the code of ethics Companies should provide the means for staff and others to raise ethical concerns. Companies should encourage good faith reporting (‘whistle-blowing’) and foster a culture whereby they are protected. Rewarding those who ‘live the ethical culture’ Ethical behaviour should be recognised and rewarded. Adherence to the company’s code of ethics should be part of the performance review process for all staff, including directors. Those who breach the code of ethics should face appropriate action. The requirement to follow and conform to the code of ethics should be included in employees’ contracts and directors’ service agreements. Monitoring and reporting Companies should monitor the impact of their ethics programme and report the findings internally with an improvement plan to address areas of concern. Many companies issue corporate social responsibility (CSR) reports annually, which cover ethics and values. Summary The board of directors is responsible for setting ethical standards and values, and ensuring that they are embedded in – and become part of the DNA of – their organisation. An ethical business should be a more sustainable business. David W. Duffy is author of A Practical Guide for Company Directors and founder of www.governance-online.com.

While a niche choice for Chartered Accountants, academia offers unique opportunities for career fulfilment. A role in academia after your training contract is not the typical route for most newly qualified Chartered Accountants. However, it does have its attractions. While many Chartered Accountants will seek job satisfaction from closing deals, winning new clients or helping to grow their own or their client’s business, the job satisfaction associated with a role in academia is of a different nature. The ability to follow the development of students from their early days in third level to the completion of their professional exams and onto a broad variety of roles brings a great sense of accomplishment. Add to this the opportunity to engage in research that can provide an input into policy development and make a practical contribution to the business world, and you have a role that provides its holder with a unique sense of contribution and achievement. Creating an appreciation of accounting Although the career path offers a different structure and set of challenges to the more traditional practice and industry-based roles, the training received as a Chartered Accountant in terms of technical, commercial and communication skills remains very relevant. The lecturing aspect of the role involves a variety of accounting topics and student profiles, from introducing basic accounting concepts to first years to focusing on practical accounting methods and tools for experienced managers on Executive MBA programmes. While many students will not specialise in accounting, creating an appreciation of the value that accounting information can bring to an organisation and the role Chartered Accountants play in the broader business environment is an important insight for their development as future business professionals. Rigorous research Another significant part of the role is focused on research and, in the initial years of your academic career in particular, on your PhD. This is one of the unique attractions of a role in academia for many who see the inherent value in undertaking a significant research project that allows you to stand back from the usual task-based nature of the business world to examine in detail how and why certain phenomena occur. For many PhD students, the topic of their research will emerge from their own real world experiences, some of which they may wish to examine more rigorously. The beauty of a PhD is the freedom it gives the student to focus on topics and issues of particular interest to them, which of course is an important point considering many part-time PhDs can run for five or six years in duration. The focus of my own research has allowed me to bring together my experiences in accounting education and agriculture to examine the area of financial literacy in farming enterprises in collaboration with Teagasc. The PhD aims to provide an insight into financial practices at a farm level and will contribute to an evidence-based approach to designing future financial education programmes for farmers. This is an important issue in the agriculture sector with an increased focus on low farm incomes, uncertainty around future EU supports given the forthcoming CAP reform, and increased price volatility all drawing attention to the financial management and viability of farming enterprises. The next generation Accountancy academics also play a key role in the development of the next generation of Chartered Accountants. A significant cohort of students will seek career advice in the first instance from their accountancy lecturers at third level. Talking to students about choosing firms, departments and roles is very much a regular part of this job. Developing a student’s technical skillset is an important objective during their time in third level, but it is not the only objective. The role of the modern professional accountant encompasses a much broader range of competencies than mere technical knowledge. It includes areas such as communication skills, teamwork and commercial awareness, and we focus on developing these skills in all students throughout their studies at third level. Gatekeepers to new areas of knowledge The rapidly changing nature of today’s business world and the adaptive nature of the accounting profession to the needs of business means we must continue to update our course and programme offerings to prepare our students for the demands of 21st century commerce. Emerging areas such as data analytics, social and environmental performance measurement, and tax morality are just some of the new topics that the next generation of Chartered Accountants will be dealing with and where demand is increasing for accountants with such skills. Academics in many ways can be seen as the gatekeepers to these new areas for the next generation of the profession. The hybrid nature of our role as both researchers and teachers places us in a highly influential position as an important conduit of knowledge between the latest research impacting the accounting profession and the current and future generations of the profession. A symbiotic relationship Maintaining strong links between the academic community and the broader profession in practice and industry should be an important objective for the continued development of our profession. The regular dissemination of the latest research in the field to the broader population of Chartered Accountants (for example, via Accountancy Ireland), the incorporation of this research into the educational offerings at both pre- and post-qualification levels, and the active promotion of practice and industry-focused collaborative academic research projects (such as those supported by the Chartered Accountants Ireland Educational Trust, for example) are all avenues to further strengthen this important symbiotic relationship. Pushing the boundaries of knowledge A career path in academia is undoubtedly a niche one in the context of the broad range of accountancy-based roles available. It does, however, offer a unique set of opportunities to a Chartered Accountant in terms of playing a role in developing the next generation of the profession while also making a contribution to policy development and practice in areas of business and society of interest to you. Pushing the boundaries of knowledge in the discipline of accounting and ensuring the effective transfer of this new knowledge to the broader population of Chartered Accountants is an important role within the profession. To borrow a line from Benjamin Franklin, “An investment in knowledge pays the best interest”. While Franklin may have been focused on the individual, his words also hold true for the accountancy profession as a whole. John Nolan is a Lecturer at Dublin City University Business School and Chartered Accountants Ireland.