In November 2020, the Irish Auditing and Accounting Supervisory Authority (IAASA) issued a revised ethical standard for auditors,  Ethical Standard for Auditors (Ireland) 2020  (https://www.iaasa.ie/Publications/Auditing-standards). The revisions build on existing changes made to the standards in 2017 which implemented the requirements of the EU Audit Regulation and Directive.    The revised Ethical Standard includes a new requirement for audit firms to make reports of breaches of the Ethical Standard to the relevant competent authority and now explicitly prescribes reporting of breaches to those charged with governance. The purpose of the Technical Release (TR 02/2021) Reporting Breaches of Ethical Standard for Auditors (Ireland) 2020 is to alert members to these new requirements and to provide an example of the report that may be submitted to the Recognised Accountancy Body and IAASA. Please note the revised standard is effective from 15 July 2021.

In November 2020, the Irish Auditing and Accounting Supervisory Authority (IAASA) issued a revised ethical standard for auditors (https://www.iaasa.ie/Publications/Auditing-standards ).  The revisions build on existing changes made to the standards in 2017 which implemented the requirements of the EU Audit Regulation and Directive.  The Institute have issued the attached Technical Alert (TA 02/2021) Guidance on the revised Ethical Standard for Auditors (Ireland) 2020 to highlight to members the key new requirements of the Ethical Standard applicable in Ireland and to add some clarification. In particular we draw attention to the effective date of the revised standard. The Ethical Standard for Auditors (Ireland) 2020 is effective from 15 July 2021. There are limited transition provisions.  These are set out on page 30 of the Ethical Standard and in Section 5 of the Technical Alert. Firms may complete engagements relating to periods commencing before 15 July 2021, in accordance with existing ethical standards, putting in place any necessary changes in the subsequent engagement period. Engagements to provide previously non-prohibited non-audit services entered into before 15 July 2021, and for which the firm has already commenced work may continue until completed in accordance with the original engagement terms, subject to the application of appropriate safeguards.   

Níall Fitzgerald, Head of Ethics and Governance, writes:  Over 59% of member firms with audit registration on the island of Ireland carry out audits of non-profit organisations, including charities. It is reasonable to expect that an even greater number provide non-audit services to this sector. Many members in practice, and their staff, are also involved in the sector as trustees, volunteers, or donors.  This level of involvement is not surprising given the size of the sector.   According to the Northern Ireland Council for Voluntary Action (NICVA), as of February 2020 there were approximately 6,122 non-profits with total income of £792m in Northern Ireland. In the Republic of Ireland, according to data available at the end of 2019 collated by Benefacts, there were approximately 32,841 non-profits. The total income determinable for 32% of these was €14.2bn (the remaining 68% being mostly smaller local non-profits for which relevant information was not publicly available). Impact of Covid-19 pandemic on the sector The financial impact of the Covid-19 pandemic on non-profits is not yet clear. Many non-profits entered 2020 with low reserves and some have been forced by the pandemic to pause operations, while others have experienced a surge in demand for their services. Accountants are playing an important role in supporting the recovery of this sector, such as assisting with obtaining grants and government supports. In a report published by Benefacts in May 2021, ‘Charities in Ireland 2021’, an uplift of over 10% in government funding was provided to charities in the Republic of Ireland. Some charities also benefited from increases in philanthropic donations. Five key considerations for accountants providing services to the non-profit sector Given the level of commitment of members in practice to the non-profit sector, the following considerations are a useful aide memoir for some of the common matters that can arise: 1. Determine if client is a charity or other non-profit All charities are non-profits but not all non-profits are charities. For example: an owners’ (or residents’) management company may establish as trading for the mutual benefit of its members, but it is not a charity, nor is it a non-profit established for a public benefit; and while a sporting organisation may be established as a non-profit, it may also be registered as a charity. If in doubt, confirm by reference to the registers of charities maintained by the Charities Regulator in the Republic of Ireland or the Charity Commission of Northern Ireland if the non-profit is a registered charity. When accepting a non-profit client, it is important to understand these nuances to determine the type of services you may be requested to undertake and also to understand its various governance structures that may impact on anti-money laundering vetting and other client acceptance procedures. 2. Avoid a principal-agent dilemma Many non-profit organisations are juggling various governance, secretarial, accounting, audit, and finance requirements, in the midst of delivering services. While some of the larger non-profits will have full time staff to manage these requirements, smaller organisations will have fewer resources (sometimes consisting of part time or volunteer staff). The board of trustees/directors bears the ultimate responsibility for the management and control of the organisation, but there is a level of reliance placed on the services of the accountant to fill any gaps in expertise. A principal-agent dilemma can arise in instances where the principal (the non-profit) can have different expectations to those understood by the agent (the accounting firm). This dilemma is more common in casual and informal business relationships, potentially exposing the fiduciary (the accountant) to greater risk. Where the accountant accepts appointment as auditor, they are a principal in their own right. Auditors need in the first instance to maintain their independence, and all additional services should be viewed in this context. Part of the solution is to ensure that a tailored engagement letter is put in place at the start of each business relationship, clearly stating services to be provided and each party’s responsibilities. The letter should be reviewed annually and updated when required. 3. Advising on governance requirements for charities Charities in the Republic of Ireland are required to apply the Charities Governance Code (the ‘Code’). In 2021, charities are required to report for the first time on compliance with the Code. The following key points address some common queries from charities: Charities are required to note in their annual return to the Charities Regulator whether they are compliant with the Code. If compliant with the Code, the charity should disclose this fact in its annual report, for example in the Trustees Report. The Code applies on a ‘comply or explain’ basis: if a Charity has not complied with any part of the Code, it is required to provide an explanation. Charities must annually complete a Charities Governance Code Compliance Record Form, available from the Charities Regulator website. The form is not required to be submitted to the Charities Regulator unless specifically requested as part of a monitoring exercise. The Charity Commission for Northern Ireland has produced guidance, factsheets, and other resources to support charities in maintaining good governance and meeting their statutory responsibilities. The Code of Good Governance, produced by the Developing Governance Group, while not a statutory code, has been widely endorsed as a practical resource for supporting charities in complying with governance best practice and their statutory obligations. Further information on governance requirements is available from the Charities Regulator (Republic of Ireland) and The Charity Commission for Northern Ireland. 4. Managing conflicts of interest If an accountant is asked to intervene in a dispute arising amongst trustees, staff, or volunteers of a non-profit, or between the non-profit and a third party (other than the accountant), it is important to determine whether there are any conflicts of interest to be managed. Given the often local nature of non-profits, and the level of community commitment and passionate support they receive, accountants should be particularly aware of disputes involving: other clients of the practice; any other partner or staff member in the practice; a close family member or friend of any of the above. In some cases, an accountant may be providing services to a non-profit that they support for personal reasons, e.g. a family member benefits from the service of the non-profit. In such cases, the accountant is encouraged to consider whether they can provide objective advice to resolve the dispute, or whether any preconception or bias may affect professional judgment to the extent they can no longer be objective. Section 310 of the Chartered Accountants Ireland Code of Ethics identifies certain measures that can be taken to safeguard threats caused by a conflict of interest. Some examples of measures include disclosing the conflict, obtaining consent, or resigning from the provision of services. Additionally, auditors have specific responsibilities under Ethical Standards applying to auditors. 5. Promoting transparency and filing full sets of financial statements Many non-profits rely on public funding and/or private donations. Many also rely on broad support networks, including volunteers and other voluntary services. In an era where scepticism is plenty and trust is guarded, accessibility of information and transparency can make a big difference in efforts to attract significant funds and other forms of support. To address this, non-profits who are incorporated should consider publishing and filing full statutory financial statements (e.g. FRS 102 or FRS 102 Charities SORP). Indeed, they may be obliged to do so. Unincorporated non-profits should consider a similar level of transparency regarding their annual accounts. The preparation of financial statements is ultimately the responsibility of the trustees/directors of the non-profit. They have statutory and fiduciary duties to act in the best interests of the organisation and to have regard to its stakeholders. However, they may seek the advice of the accountant who, as a fiduciary advisor, has a responsibility to advise and act in the client’s best interests. Current corporate governance codes and best practice reinforce the importance of accountability and transparency in the non-profit sector and encourage standards that are higher than minimum compliance with the law. It is important to ensure that these requirements are considered in making decisions or providing advice affecting the preparation of financial statements. The Chartered Accountants Ireland Governance Resource Centre contains useful resources for trustees or directors of non-profits, such as the ‘Concise Guide of Ethics and Governance for the Charity and Not-for-profit Sector’ and the recently published ‘Owners’ Management Companies – A Concise Guide for Directors’.  

Entries open until 11 September 2020 The Good Governance Awards recognises and encourages adherence to good governance by charities and other non-profit organisations in Ireland. The 2020 Awards are now open for entries for both the Annual Report Award and the Governance Initiative Award on www.goodgovernanceawards.ie Institute involvement The Institute are proudly supporting the awards for the third year. It is important to recognise good governance and more importantly to recognise the people that are responsible for putting it into practice. Members of our profession are held in high regard by charity and non-profit organisations and many are involved in the sector by direct employment, volunteering, accepting trustee appointments, acting as advisors, accountants, or auditors. Two Award Types Annual Reports: This award recognises annual reports that effectively tell the story of the non-profits its activities, impact, finances and demonstrates adherence to good governance practice.   Governance Improvement Initiative: This award recognises initiatives that have been taken in the last 12 months to improve the quality of the non-profit’s governance. Four great reasons to enter Open for non-profits of all sizes: There are six entry categories ranging from small (annual turnover of less than €50,000) to the very large (turnover of over €15 million).The push this year is for getting smaller non-profits involved Entries reviewed by a first class assessment and judging panel: There is a panel of over 60 assessors and judges and seven accountancy firms who bring great expertise and experience who will review each entry and provide valuable feedback and insight to assist in enhancing each submitting organisation’s governance Organisation reputation is enhanced with stakeholders: Entering the Good Governance Awards demonstrates commitment to adhering to good governance practice and transparency. It also shows willingness to be assessed and receive feedback on how governance can be enhanced Boost team morale and gain valuable PR opportunities: Being shortlisted for a Good Governance Award recognises hard work to adhere to good governance practice. Winning an award boosts credibility and increases awareness of the organisation which can help convince even more people that it is a cause worth supporting. New award category for 2020: very small non profits In this year's Good Governance Awards, there is a new entry category for very small non-profits (annual turnover less than €50,000). As an added incentive to encourage smaller non-profits to enter for the Annual Report award, thanks to the Community Foundation of Ireland, those shortlisted in this category will receive €1,000 with the overall winner receiving an additional €1,000. For more details, see www.goodgovernance.ie Institute supports and services for those involved in the Charity/Non-profit sector (‘the Sector’) The following are examples of key supports and services the Institute have in place for members: Dedicated Charities and Non-profit members group (ROI), co-chaired by Paula Nyland FCA and Tony Ward FCA – See page 50 of 2019 Annual Report) Dedicated Charities and Non-profit members group (NI), chaired by Dr Rosemary Peters Gallagher OBE – See page 23 of 2019 Ulster Society Annual Report) Concise Guide of Ethics and Governance for the charity and not-for-profit sector Northern Ireland: Notification facility for Charities/Non-profit boards seeking expressions of interest from Chartered Accountants to join their board. Click for list of contacts Procedures for Quality Audit for Charities – ROI Procedures for Quality Audit for Charities – NI Online courses relevant to Charity and non-profit sector (click and search) e.g. Auditing and Accounting for Charities – ROI Also, events run by District Societies (Western, Cork, Ulster, Mid West, North West, Leinster, London, Australia, United States) Northern Ireland:  Organise webinars on relevant topics for sector (click and search) Technical representations to standard setters, government and regulators on matters also affecting the Sector, based on inhouse technical research and expert input from members technical committees Technical Releases and Technical Alerts providing additional information on technical matters also affecting the Sector Dedicated Governance Resource Centre an Ethics Resource Centre containing updates and other resources on matters also relevant to the Sector Níall Fitzgerald - Head of Ethics and Governance      

The Institute’s Code of Ethics for members has been revised and restructured and this revised Code will take effect from 1 March 2020 replacing the current Code of Ethics (effective September 2016). The revised Code of Ethics is available to read here. The Institute’s Code of Ethics has been closely aligned for many years to the Code of Ethics issued by the International Ethics Standards Board for Accountants (‘IESBA’).  In 2018 IESBA finalised a significant project to clarify and restructure its Code of Ethics.  IESBA’s primary intention behind this restructuring of the Code was not to fundamentally change the substance of the Code, but to improve clarity and navigation.  Some key features of the restructuring include: a more consistent approach to each section, including separating out material into requirement paragraphs and related application material; reordering material, dividing larger sections and including more sub headings; simplifying the more complex sentences; changing numbering to clarify the intent of each paragraph, and to allow for further changes without having to renumber existing material; and Introducing a “Guide to the Code” to explain how it works. The Institute’s Code of Ethics has now been revised to align with the restructured IESBA Code and so the format and layout of the revised Institute Code of Ethics will look completely different to members.  To help members become familiar with the revised Code of Ethics we have made available a table of destinations which shows where each paragraph in the 2016 Code appears in the revised 2020 Code.  This table of destinations can be accessed here. The new structure, compared to the old structure, is as follows: Revised Code of Ethics for members of Chartered Accountants Ireland (effective 1 January 2020) Extant (‘old’) Code of Ethics for members of Chartered Accountants Ireland (effective 30 September 2016) Guide to the Code This is a new section in the revised Code of Ethics Part 1 – Complying with the Code, Fundamental Principles and Conceptual Framework Sections 100–120 Part A – General application of the Code Sections 100-150 Part 2 –Professional Accountants in Business Sections 200-299 Part C – Professional Accountants in Business Sections 300-350 Part 3 –Professional Accountants in Public Practice Sections 300-399 Part B– Professional Accountants in Public Practice Sections 200-280 Part 4A – Independence for Audit and Review Engagements* Sections 400-800 Part B – Professional Accountants in Public Practice Sections 290 Part 4B – Independence for Assurance Engagements other than Audit and Review Engagements Sections 900-990 Part B – Professional Accountants in Public Practice Sections 291 Part 5** - Applicable to Insolvency Practitioners Part D – The Practice of Insolvency Section 400  *        The Institutes’ Code of Ethics does not apply to the performance of statutory audit work.  Independence and other ethical requirements for auditors are contained in the Ethical Standard for Auditors issued by the FRC and IAASA in the UK and Ireland respectively. **     The revision of the part of the Code of Ethics applicable to the practice of insolvency is still ongoing and is expected to be published in the first half of 2020.  Non- IESBA content – ‘add-on’ material The Institute’s Code of Ethics has historically contained ‘add-on’ material (shown in italics in the Institute’s Code) over and above the provisions of the IESBA Code of Ethics.  Where the revised IESBA Code of Ethics now addresses the matters included in Institute ‘add-on’ material or where the add-on material has been assessed to be descriptive in nature rather than core to the Code of Ethics,  such ‘add-on’ material has been removed as part of the revision project.  The revised Institute Code of Ethics is now closer than ever to the IESBA Code of Ethics.   Removed ‘add-on’ material which is considered useful but not core to the Code has been made available for members in a series of Ethics Releases on the following topics: Code of Ethics and changes in professional appointments; Code of Ethics and confidentiality; Code of Ethics and corporate finance advice; Code of Ethics and marketing.  These Ethics Releases are available in the Institute’s online Ethics Resource Centre. Key developments in the revised Code As well as the significant restructure there have been some enhancements of the content in the revised Code of Ethics although there is no fundamental change to ethical requirements.  These include the following: “Guide to the Code” This new introductory section does not form part of the Code but provides some useful information on the purpose of the Code, it’s structure and how it is to be used. Enhanced and overarching conceptual framework There is a clear emphasis on the fundamental ethical principles and the use of the conceptual framework for applying those principles underlying every section of the Code.  In this context there is also new guidance to emphasize the importance of understanding facts and circumstances when exercising professional judgment and new guidance to explain how compliance with the fundamental principles supports the exercise of professional skepticism in an audit or other assurance engagements. Safeguards Revised ‘safeguards’ provisions better align to threats to compliance with the fundamental principles.  A new definition of ‘safeguards’ clarifies that ‘safeguards’ are specific actions (no longer ‘actions or measures’) to be taken to reduce threats.  Additional guidance is provided in the revised Code of Ethics in relation to example ‘safeguards’. Application of relevant Code provisions to all professional accountants Clear guidance that relevant provisions for professional accountants in business are also applicable to professional accountants in practice, in the context of their role other than when providing professional services to clients.  The converse also applies where appropriate.  This is not a change to requirements of the Institute’s 2016 Code of Ethics but rather provides clarification as to how the provisions of the Code apply. Professional accountants in business (‘PAIBs’) New and revised sections dedicated to PAIBs relating to: preparing and presenting information (extended new section 220); and dealing with pressure to breach the fundamental principles (new section 270) These changes add additional explanation to existing requirements in the Institute’s 2016 Code of Ethics and have, for the most part, been regarded as implicit in the 2016 Code.   Non-compliance with laws and regulations (‘NOCLAR’) Dedicated sections on non-compliance with laws and regulations (‘NOCLAR’) (new sections 260 and 360).  The 2016 Code of Ethics includes specific permission to breach confidentiality in the public interest and so the NOCLAR provisions can be seen as a change of detail, rather than of substance.  The new sections provide additional guidance in this area. Inducements Additional guidance is provided in relation to the threats posed by gifts and hospitality and more broadly now referred to as inducements.  The revised Code of Ethics introduces an ‘intent’ test.   The acceptance of any inducement which is offered with an intent to influence inappropriately is prohibited whereas there may be possible safeguarding actions to take in relation to inducements where there is no intent to influence inappropriately.

Shane McAleer writes: “That would be an ecumenical matter!” The Ethics Research Report, published by Chartered Accountants Ireland in January 2019, reported that “94% of respondents have ‘observed or encountered’ some level of unethical behaviour during their professional career”. Due to the nature of their business, members working in practice can be more exposed to certain ethical dilemmas. In my experience, the following are two typical dilemmas that can arise and, unless appropriately managed, may potentially lead to unethical behaviour. Business & professional client relationship vs close personal friendship Over time, practitioners can develop a good professional relationship with their client. On some occasions this can develop into a closer personal friendship which, in some circumstances, can expose the practitioner to a threat to their professional ethics. The level of threat can vary. For example: Acting for two clients, both friends of the practitioner, on opposite sides of the same transaction can present a greater threat to independence (breach of objectivity) than perhaps having two bookkeeping clients who happen to be competitors Casually discussing a client’s affairs over a drink with a mutual friend can present a breach of confidentiality. There are safeguards in the Code of Ethics, or the Ethical Standard for Auditors, to help manage these. The ultimate safeguard is resignation, but only insofar as the threat arises between the client and the practitioner. Where the misconduct arises through an action of the client, then this can lead to specific professional responsibilities, e.g. whistleblowing or reporting suspicious transactions under Anti-Money Laundering legislation. Such scenarios can present an ethical dilemma where the practitioner is torn between the value of friendship and their professional obligations. For some, the dilemma can deepen where the client pleads for discretion. This segues to another typical dilemma, below. Expectations to deliver vs Undue pressure/influence from the client or management Situations can arise where practitioners are put under undue pressure/influence from the client to “turn a blind eye” on certain matters. This pressure may also come from management within the practice. In my experience as an insolvency practitioner, I have come across scenarios in companies where a potential ethical threat existed for the practitioner previously advising or auditing the company. In one scenario, a sole practitioner provided audit and tax advice to a large family company for many years. There was a good relationship with the client, given that the client had followed from a firm where the practitioner had previously worked. Over time, the owner/director amassed a significant director’s loan. The practitioner was aware of the loan but for several years it was not disclosed correctly in the accounts. The relevant taxes associated with the loan were not submitted. In another scenario, a practitioner prepared management accounts, showing a solvent position, for the purposes of providing these accounts to a secured lender. The practitioner was aware that the accounts were materially different from the actual position, i.e. an insolvent one. The client was insistent that failure to present a solvent position would result in financial support being withdrawn, with the potential loss of the business and jobs. The facts of the cases in scenario one and scenario two suggested that the practitioner had, perhaps inappropriately, succumbed to pressure from the client to agree with the client’s rationalisation that it was in the best interests of the company to account for matters in this way, and even that the company’s survival may depend upon it. Perhaps, the decision to accommodate the client was influenced out of a sense of loyalty. Perhaps it was out of fear of losing a client. Or, perhaps it was out of a lack of awareness of the relevant requirements! In addition to the safeguards outlined in the ‘Code of Ethics’, there are a number of supports available to all Members and their staff from the Institute, including the Ethics Resource Centre which contains a number of articles and publications to assist members to reach a decision. The Practice Consulting team will always be willing to advise members in practice in dealing with ethical issues and, in addition, CA Support is open to all members to assist them in times of difficulty. Shane McAleer is a director in Somers Murphy & Earl Corporate Services Limited. He is a member of Council, the Institute’s Ethics and Governance Committee, and the Members in Practice Committee. He is also a member of the CCAB-I Insolvency Committee.

Chartered Accountants Ireland has responded to the FRC Feedback Statement and impact assessment relating to its review of 2016 Auditing and Ethical Standards In our response to the FRC we highlighted our primary concerns about the proposed updates to the standards.  We consider that it is essential that the FRC allow sufficient time for the 2016 standards to be fully embedded and for full consideration to be made of the overall impact of proposed further changes deriving from the reviews undertaken by Sir John Kingman and the Competition and Markets Authority, and the ongoing work being undertaken by Sir Donald Brydon in relation to the quality and effectiveness of audit. In our opinion, introducing an intermediate set of changes to standards prior to completion of that full consideration poses significant risk, given that it places auditors in a position of having to make changes on a piecemeal basis, in the knowledge that further changes will be required in response to those three reviews.   We also have significant reservations about certain aspects of the proposed changes to the Ethical Standard and the proposed extra territorial application of UK rules. On a similar note we have concerns about any divergence of FRC standards from the International standards given the number of groups with companies based in the UK, Europe and elsewhere.   In February 2019 we responded to the previous FRC consultation on the standards. Both responses can be read here: September Response February Response Our response to the Brydon Review  in June of this year can be accessed here.     

C-suite executives deploying 4IR technologies have a tough ethical terrain to navigate. Putting in place a policy for ethical usage of technology could benefit their businesses – and society. By Timothy Murphy, Swati Garg, Brenna Sniderman and Natasha Buckley Leaders are increasingly demonstrating that they want their organisations to do well by doing good, and with reason. Doing good can be good for business, especially in an intensifying economic, social, and political milieu that is challenging organisations to reinvent themselves as social enterprises. Deloitte Global CEO Punit Renjen’s Success Personified in the Fourth Industrial Revolution report, released at the World Economic Forum conference in Davos, Switzerland, earlier this year highlights that leaders are putting a greater focus than ever on advancing society through their technology efforts. In fact, leaders rated “societal impact” (including income inequality, diversity, and the environment) as the number one factor in assessing their organisation’s annual performance, ahead of financial performance, customer experience, and employee satisfaction. This view manifests in their actions as well – more than 73% of the surveyed organisations have developed or changed a product in the past year to generate positive societal impact through Fourth Industrial Revolution (4IR) technologies. But as organisations strive to take society forward with 4IR solutions, they are often confronted with a host of ethical issues, which can have societal as well as business ramifications. Examples of ethical “missteps” by companies abound in the media these days. One issue highlighted in the news regularly is that of data privacy, and it has left consumers understandably worried about how their data is captured, saved, and used. Another emerging threat is algorithmic bias, where biased data manifests itself in biased recommendations, but we’re yet to fully understand the ramifications of algorithmic bias. Even lack of inclusivity in technology design can negatively impact consumers, as seen in some smart city designs where people in wheelchairs are unable to access eye-level retina scanners as they require the person to be standing. These ethical issues, and others, have led to product recalls, public backlash and/or lost revenue for companies. In this technologically and ethically complex environment, organisational values matter more than ever. If leaders don’t formulate and implement policies on the ethical usage of technology, it will likely become difficult for them to navigate the Fourth Industrial Revolution. More importantly, it could inhibit innovation and financial growth at their companies. Our survey data from this year’s study reinforces the link between ethics and organisational growth (see the sidebar, “Methodology”), providing further rationale for why companies should care about ethically using 4IR technologies. The study found a positive correlation between organisations that strongly consider the ethics of 4IR technologies and company growth rates (Figure 1). For instance, in organisations that are witnessing low growth (up to 5% growth), just 27% of the respondents indicated that they are strongly considering the ethical ramifications of these technologies. By contrast, more than half (55%) of the respondents from companies growing at a rate of 10% or more are highly concerned about ethical considerations. Ethical concerns don’t always translate into action Most executives responding to our survey were concerned about ethical usage of 4IR technologies. More than 30% of the respondents strongly agreed that their organisations are highly concerned about ethical technology usage and another 50% indicated a moderate concern. Yet when it comes to action, this number dropped significantly – just 12% of the respondents strongly agreed that their companies are actively exploring related policies or already have them in place. So, what’s preventing leaders’ ethical concerns from being translated into ethically driven actions? The answer may lie in the dynamics of the C-suite. Our survey found that concern over ethically using 4IR technologies is not consistent across the organisation (Figure 2). Starting at the top of the C-suite, only 15% of CEOs and presidents expressed strong concern about ethical technology usage (considerably less than the 30% average across the C-suite). The chief information officer (CIO), a role often charged with managing these technologies, averaged only 16%. Contrast this with roles like the chief sustainability officer (CSO) and the chief operating officer (COO) who indicated strong ethical concerns at 50% and 41% respectively, and a clear disconnect emerges between the CEO/CIO’s line of thought and that of the CSO/COO. Given that reputation and social impact are critical aspects of the CSO’s role, executives in this role are more likely to care about ethics. The COO, who oversees enterprise-wide operations, is likely to be more aware of how work is executed and, therefore, have greater awareness of potential ethical issues. However, those with more influence on the 4IR strategy – the CEO and, to a lesser degree, the CIO – seem to be disproportionately swaying organisational policy. Only 12% of the organisations whose executives were surveyed have policies in place or are actively exploring the implementation of policies (tracking closer to the level of concern conveyed by the CEO and CIO) on ethical usage of technology. Extending ethical thinking across the organisation While 4IR technologies offer immense opportunities, they also bring many ethical challenges as they’re poised to transform the way we live, work and interact with each other. As a result, leaders at the helm of companies looking to benefit from these technologies need to navigate a complex ethical environment. Organisations could benefit from ensuring that proper policies are in place and are adhered to. The following steps can help leaders move forward in this direction: Set the tone at the top: if the CEO doesn’t consider ethics a priority, it will likely be difficult to get the rest of the organisation to do so. Not only should the CEO emphasise the importance of ethical considerations in the usage of technology, they should also encourage other members of the C-suite to express their concerns. The CSO and COO, by virtue of their roles, have a unique line of sight into the importance of ethics in supporting growth initiatives. This knowledge-sharing between the CSO and COO and the rest of the C-suite can empower executives in the organisation to tailor their solutions with ethics as a top-of-mind design consideration; Cultivate an ethical culture: ethics is not only an issue for C-level executives to consider, but it is also of prime importance to an entire organisation. It starts with clearly messaging ethical policies and guidelines – and leading by example – but it also includes giving your workforce a voice in the discussion. As senior executives work out strategies to integrate these technologies into every facet of the workforce, it’s important that they provide other employees with avenues to express ethical concerns about their usage; and Iterate the policy: 4IR technologies are rapidly changing and accordingly, policy too should change. Just as government regulation is trying to keep pace with autonomous vehicles and smart cities, organisations should establish constant touchpoints to ensure that their ethical policies keep pace with the rapidly changing technology environment. For CEOs and other C-level executives, integrating the ethical considerations of employees across the organisation and other stakeholders into their day-to-day operations also makes good financial sense. The organisations that set the tone at the top are the ones that are likely to be best positioned to help their businesses – and society – flourish. This article was originally published by Deloitte Insights. View the article at www.deloitte.com/insights/industry-4-0-ethics Methodology This research is an extension of the Success Personified in the Fourth Industrial Revolution report, which is based on a survey of 2,042 global executives and public sector leaders conducted by Forbes Insights in June–August 2018. Survey respondents represented 19 countries from the Americas, Asia and Europe, and came from all major industry sectors. All survey respondents were C-level executives and senior public sector leaders including CEOs/presidents, COOs, CFOs, CMOs, CIOs and CTOs. All the executives represented organisations with revenue of US$1 billion or more, with half (50.1%) coming from organisations with more than US$5 billion in revenue. 65% of the public sector leaders represented organisations and agencies with budgets of US$500 million or more.

The Institute’s new guide, a five step approach to considering organisational culture,  serves as a useful starting point for a board, or those in executive or senior management positions. By Níall Fitzgerald The Business Roundtable is a group of influential CEOs from America’s leading companies, and it recently renewed its “statement of purpose”. Having spent 22 years following a shareholder-first philosophy, the group has adapted to societal expectations for better business behaviour by expanding its fundamental commitment to deliver value to other stakeholders including customers, employees, suppliers and communities. It is hard to imagine how this commitment will be honoured without changes to organisational culture by the 181 CEOs who pledged to lead their companies for the benefit of all stakeholders. Closer to home, the UK Corporate Governance Code was revised by the Financial Reporting Council (FRC) in 2018. Its original source from 1992, The Financial Aspects of Corporate Governance (otherwise known as The Cadbury Report), outlined the importance of a principled corporate governance code “for the confidence which needs to exist between business and all those who have a stake in its success”. The only stakeholders mentioned in that version, and successive ones, were institutional investors and shareholders. Twenty-six years later, the Code not only refers to “a wide range of stakeholders” but also formalises the board’s role in aligning an organisation’s culture with its purpose (vision), values and strategy (mission). Reflecting this trend, investors and business analysts are ramping up their cultural assessments of organisations. A study conducted in 2015 by global culture organisation, Walking the Talk, with Stamford Associates in the UK, revealed that 94% of investment managers based mainly in the United States (US) and UK include culture as an important consideration in their investment decisions. In January 2019, State Street Capital, one of the world’s largest asset managers, wrote to the chairs of more than 1,100 organisations in the S&P 500, FTSE 350 and similar organisations in France, Germany, Australia and Japan, calling on them to review their culture and explain its alignment with their strategy. Investors are voting with their feet, which was evidenced by the dramatic fall in Barclays’ share price in 2017 following CEO Jes Staley’s attempt to identify an internal confidential whistleblower, which went against the organisation’s espoused values and culture. Institutional investors are also taking a more active role in driving change by making their expectations clear – not just around the rate of returns, but also on the organisational culture they wish to align with. The Japanese Government Pension Investment Fund (GPIF), one of the largest pension funds in the world, implements an environmental, social and governance (ESG) investment decision-making methodology. This methodology considers factors such as the quality of a company’s culture as well as management, risk profile and other characteristics. They are not alone, with many other institutional investors following a similar approach. In producing Chartered Accountants Ireland’s Concise Guide for Directors: A Five-Step Approach to Considering Organisational Culture, we identified a consensus that organisational culture plays an increasingly important role in influencing behaviours in an organisation. Given the importance of organisational culture, several questions were raised during the production process. Four of the most common are outlined below: 1. Who is responsible for organisational culture? The board has overall responsibility for ensuring that an organisation’s vision, mission and values are aligned with the culture of the organisation. In the same way the board is responsible for approving the strategy of the organisation, it is also responsible for agreeing on what the target culture of the organisation (i.e. the culture the organisation should aspire to) should be. Each member of the board, executive or non-executive, has a responsibility to lead by example and promote the target culture; this involves ensuring that adequate time is allowed on the board agenda for discussions on organisational culture. 2. Who influences organisational culture? It depends. This is where the phrases “the tone at the top” and the “echo from the bottom” comes into play. Unlike strategy, culture is an organic and fluid ecosystem, and while a target culture will be agreed by the board, the process of shaping and realising it is gradual. It involves leadership from the top of the organisation (top-down) and engagement from the bottom of the organisation (bottom-up). Who has the greater influence in shaping organisational culture will differ from one organisation to the next. For example, it may be the director(s) in a small owner-managed family business, the CEO in a multinational, the founder in a not-for-profit organisation or the legacy staff in a government department. It isn’t just internal people or politics that influences the target culture. It will be influenced by many other internal and external factors including, but not limited to, regulatory landscape; political environment; social norms; trade union participation; the history of the organisation; leadership capability within the organisation; level of ambition of people to lead change; common values shared across the organisation; and both internal and external drivers of change (e.g. digitalisation). The organisation’s culture ultimately influences and shapes the interactions with all stakeholders. 3. What are the best organisational culture traits to have? There is no one-size-fits-all. What works for one organisation may not work for another in a different stage of development or in a different sector. The objective is to determine common cultural traits that can be embedded across the entire organisation, while recognising and accepting that sub-cultures also exist. For example, larger organisations may have subcultures in different geographies or in various departments or business units. To be effective, cultural traits should be realistic and counterbalanced. Promoting a culture of collaboration and collective responsibility, for example, should be balanced with ensuring that people are individually accountable for their contributions and actions. It is also important to acknowledge that organisational culture is dynamic; it is constantly changing in response to internal and external influences. Culture risks exist, like any other risk, and organisations will need to manage accordingly. Mitigation measures include ongoing communication and reinforcement of the organisation’s core values and behaviours, combined with risk-based culture audits or reviews. Internal controls with early warning systems are useful for alerting management to behavioural changes that can negatively impact culture – for example, where a production line debriefing identifies that downtime is being recovered by taking shortcuts to stay on schedule. 4. Where do I start when considering organisational culture? The five-step approach to considering organisational culture is presented in Figure 1. This approach serves as a useful starting point for a board, or those in executive or senior management positions, to consider organisational culture. It is designed to work in tandem with the vast reservoir of tools and methodologies for assessing, defining and shaping organisational culture. The steps can be summarised as follows: Assess current culture: every journey has a starting point and it is important to understand the current culture of the organisation before agreeing the path forward. Evaluate effectiveness: determine what works well with the current culture, and what doesn’t. Are there opportunities for quick, positive change for better business behaviour? And what will require more effort? Define/refine target culture: what influences the organisation’s target culture? And does it clearly align with the business purpose (vision) and values? Identify gaps: identify, prioritise, risk-rate and cost the gaps between the target culture and the current culture in order to inform the organisation’s cultural change programme; and Close gaps: prepare the change programme to shape the organisation’s culture. Throughout the journey, it is important to communicate the changes, evaluate whether the implemented changes are having the desired effect, and reinforce the reasons for change and how they align with the organisation’s vision, mission and values. Organisations are investing more in getting their culture right. The various roles that Chartered Accountants play within organisations involve a level of influence in assessing, defining and shaping organisational culture. While this influence may not seem obvious at first, it becomes more apparent when you consider that many Chartered Accountants hold positions that provide a strategic, overarching view of what is happening in their business unit or across their organisation. By applying their analytical and reporting skills, Chartered Accountants can use their access to information and insights, as well as their opportunities to observe behaviours across the organisation, to significantly support the development of a healthy culture. Whatever role you play within an organisation, consider how you can positively influence and shape a healthy organisational culture.   The Concise Guide for Directors: A Five-Step Approach to Considering Organisational Culture is available to download from Chartered Accountants Ireland’s Governance Resource Centre. Níall Fitzgerald ACA is Head of Ethics and Governance at Chartered Accountants Ireland.

Francis McGeough reports on a study of governance practices in fifty of the largest charities in Ireland which reviewed the information contained in their annual reports.   The importance of good governance in charities was highlighted by shortcomings in two well-known charities last year (Rehab and the Central Remedial Clinic). Bad publicity from these events had a serious impact on the fundraising efforts of all charities with many reporting a substantial drop in donations. Donors to charities need to be assured that their funds are being used appropriately and the requirement for increased accountability highlights the importance of governance practices in charities. Charities must not only apply the highest standards but must also be seen to be behaving appropriately.   A key task of the recently established Charities Regulatory Authority (CRA) is to increase public trust in the charitable sector. The legal framework under the Charities Act 2009 gives the CRA legal tools to do this. However, the essence of good governance lies in the culture of an organisation rather than following the letter of the law.  Governance The word governance originates from the Latin word meaning to steer or to give direction. While, there is no all-embracing definition of governance, there is agreement that governance involves taking responsibility for managing the organisation, balancing the needs of stakeholders, ensuring accountability to stakeholders, and ensuring that the organisation achieves its objectives. Therefore, the Board should have a strategic focus; with a focus on organisational performance, and a clear division of responsibilities between the board and managers.   Charities have a valued status in society due to their good deeds. Consequently, charities are likely to be held to a higher set of standards. Thus, when things go wrong, they are particularly susceptible to public disillusionment. Therefore, charitable organisations must ensure that they maintain their reputation. Good governance practices can help in this process by underpinning public confidence in the charity, and reduce the likelihood of scandal.  Complexity of governance in charities  In publicly quoted companies, the Board represents shareholders and they hold the management to account for their performance (measured by profits and share price). However, for charities, there are a number of complications: Firstly, there may be many stakeholders with conflicting views on how the organisation should be run; secondly, there may be no agreed measure of performance and stakeholders may have different views on what is good performance which increases the difficulty for the board in holding the managers to account; thirdly, many charities rely on the goodwill of their volunteers and managers who may become resentful if their actions are constantly questioned by the Board.    Therefore, charities must find the right balance between trust and control. Too much control can lead to distrust and poor relations with the board. On the other hand, too much trust can lead to complacency and potentially bad behaviour. Survey The annual reports of fifty of the largest charities in Ireland were reviewed to determine the level of disclosure of the key elements of governance. The charities were identified from the Boardmatch Ireland listing of the hundred largest charities in Ireland. The annual reports were downloaded from the charities’ websites in October 2014. Therefore, it would be expected that the latest reports would be for 2013; however, 30% of the charities had annual reports relating to 2012 or earlier (Table 1). While there may have been a delay in uploading the accounts onto the websites, it is surprising -- given the importance of the website as a communications tool -- that the websites did not have the latest annual reports.    In relation to the disclosure of the key elements of governance, Table 2 sets out twelve elements of governance are derived from governance codes such as Boardmatch Ireland and the UK’s Charity Commission’s Statement of Recommended Practice (SORP) and shows the number of organisations which reported each element in its annual report.    Most of organisations examined provided the names of the board members in their annual report (forty three organisations representing 86% of the sample).     In relation to the elements that could be used as proxies to determine the effectiveness of the board, the level of reporting by the organisations examined is mixed (the percentage of organisations disclosing these details is outlined in brackets following the element). Board effectiveness can be measured through the recruitment process for board members (26%) biographical details of the board members (6%); length of time on the board (6%); the existence of induction processes (16%); the number of board meetings (24%); and the existence of sub-committees (52%). Therefore, readers of the annual reports would have difficulty in assessing board effectiveness in managing the organisation.    Notwithstanding the recent controversy about pay levels for managers in some charities, only fourteen organisations (28%) disclose the pay levels for their senior managers.    In relation to resource management, the level of disclosure is again quite low, with 44% of organisations identifying their key risks and outlining how they manage these. In addition, only 20% of the organisations outline what their policy in relation to reserves is.   In relation to the disclosure of non-financial information, a majority (58%) disclose some information. The study does not attempt to evaluate the quantity or quality of the non-financial information disclosed but simply examines the existence of non-financial information.    The final element examined is whether a statement of compliance with a governance code is made. The research finds that just 22% of organisations disclose such a statement. This may be due to the relative newness of a governance code and as such, it is expected that this will improve in the future.   Table 2 shows that only three of the twelve elements are disclosed by more than half the organisations. Overall, this suggests that the level of disclosure is limited and this is further emphasised by Table 3 which outlines the range of elements disclosed by the organisations examined. Table 3 shows that thirty of the organisations (60%) disclosed three or less of the twelve elements. While, only four organisations (8%) disclose ten or more elements. Conclusion The research suggests that there is considerable room for improvement. In relation to the dates of the annual reports, it is a matter of concern that fifteen organisations did not have their latest accounts available on their websites. The research suggests that organisations are publishing a very limited amount of information. Thirty organisations (60%) disclose three elements or less, while four organisations (8%) close nine or more elements. Furthermore, only three elements are disclosed by more than half of the organisations.    In overall terms, it would be difficult for the readers of the annual reports to be able to assess the effectiveness of the board. Furthermore, given the recent controversies about remuneration levels in two Irish charities, it is somewhat surprising to see that only 28% of the organisations surveyed disclosed remuneration details of their senior managers.    The annual report provides a window into what is deemed important by the organisation and is also an opportunity for the organisation to account to its stakeholders for its stewardship. If that is the case, the evidence presented here would suggest that Irish charities place limited emphasis on presenting information on governance and performance. In today’s environment, this is a missed opportunity. However, this does not imply that there is a problem with governance standards in Irish charities but it does suggest that charities must review the information provided because they should not only apply the highest standards but must be seen to do so. In this regards, there is much room for improvement.    Francis McGeough PhD lectures in Accounting and Finance at the Institute of Technology, Blanchardstown. This article is a shortened version of a paper to be presented at the British Accounting and Finance Association annual conference in Manchester in March 2015.  

Justin Moran explains why private sector boards need a sharper focus if they are to perform optimally in the best interest of the company. The benefits of effective governance for private sector companies includes more strategic thinking, improved decision making processes, proactive risk management and, ultimately, leveraging investment and capital at more competitive rates. Yet many private sector companies, which are not subject to regulation, operate outside any mandatory governance codes and are typically reliant upon a smaller governance structure to help direct and control the activities of the company. For small- to medium-sized (SME) and large companies, this places a significant burden on the board of directors. The present business environment also means that the board must: Be more proactive in the establishment and monitoring of strategy, including those objectives which underpin growth; Assess how well the organisation is positioned to attract and retain the skills and resources necessary to deliver the strategy; Remain alert to developments in competition and innovation; Be aware of new and emerging trends in the use of technology and data, digital marketing and social media; and Identify and monitor risks as they develop and emerge, including financial, operational and compliance-based risks. Overall, board effectiveness plays a key role in ensuring that companies are adequately positioned to face these challenges and opportunities. Improving board performance and outcomes To enhance board effectiveness and outcomes, private sector companies should start by considering the following elements of an overall governance framework: Aligning the governance structure with the growth of the company: Identifying where the company is positioned within the corporate life-cycle is key to determining its governance needs. However,it is something that is commonly overlooked. It is imperative that companies strike a balance between what has been effective in achieving their success so far, and what strategies can sustain longer-term success. If the governance approach results in too much bureaucracy, organisations will inadvertently create a potential downside risk. Identifying and promoting the intangible asset of culture: One of the significant challenges facing boards is identifying how to strike the right balance when seeking to understand and develop the intangible asset of culture. It is informed by the levels of support and challenge around a boardroom table. It has also been recognised as serving a key role in determining the effectiveness of the board in leading and directing the business and its ability to achieve its full potential. Boards can start by asking: what are the vision, mission and values of the organisation and how well is this articulated? What behaviours are desired and undesired within the organisation? And how is the ‘tone at the top’ set and is it permeating throughout the organisation? When considering these questions, the board should assess the type of culture that is desired and suited to their implementation of governance measures relative to their position in the corporate life cycle. Board composition and structure It is well recognised that not having the correct people with the necessary skills is a huge impediment to development as a board. While its effect on boardroom behaviour and culture should not be underestimated, any private sector enterprise seeking to grow new markets, build wider networks and harness experience based on a proven track record must carefully evaluate whether the board has the necessary skills in place. To develop and build upon the capabilities of the board, a key step is the decision to invite external directors (non-executive directors) onto the board. A more diverse board composition generates a significant impetus towards better governance and is likely to have a significant impact on the culture of boardroom decision-making. In terms of overall structure, the vital relationships that must function efficiently include the chair and the CEO, and the CFO and the audit committee. The implementation of Companies Act 2014, including the requirement for directors of all large companies to establish an audit committee (or disclose otherwise), will further highlight the importance of developing these structures and relationships. Similarly, board dynamics are complex and ever-changing. Board changes can affect relationships; therefore the need for succession planning remains strong. Maintaining the appropriate balance of formal processes It is important that the board implements a combination of both formal and informal processes, which are reflective of the maturity and culture of the organisation. Examples of key formal processes include setting a board agenda that does not focus purely upon short-term objectives. The agenda should be set by the chair and should also be informed by input from non-executive director(s) where required. Risk and opportunity management (ROM) should be embedded within the board agenda to promote engagement and discussion on scenarios that impact upon organisational strategy and objectives. Attention should be paid to the conduct of board meetings to ensure that meetings are adequately chaired, engaging and ultimately adding value to the organisation. It is hugely counterproductive if meetings evolve into ‘talking shops’ without effective decision-making processes. The distribution of the agenda should also allow adequate time for board members to consider the agenda and review the supporting board pack. Doing so will maximise the effectiveness of the meetings. High-quality and up-to-date management information, which helps the board understand and analyse key performance data and indicators, should be used. The development of board-level management information should be agreed with the CEO and/or senior management so that there is a clear understanding of board needs and what existing information and data can actually be provided. This is an important area that is often overlooked and can cause significant tension between the board and management. Such tension may arise from a perceived view of the board of not receiving the full picture. A clear understanding and focus upon performance data can also underpin the board’s role in setting and monitoring CEO and executive-level performance objectives and the approach to remuneration. The importance of informal processes Many boards often overlook what may be considered ‘informal processes’ when seeking to improve board effectiveness. It should be remembered that board conduct, decision-making and effectiveness are dependent on a combination of factors including relationships, teamwork and communication. In this context, any investment of time and commitment in building strong relationships among board members will normally lead to improved outputs and performance. Examples may include structured away days, planned visits by non-executive board members to different parts of the business, or making use of time away from the formality of board meetings to get to know each other. Private sector governance codes The UK Corporate Governance Code is primarily aimed at listed companies rather than SME or larger unlisted companies. While it is recognised as the leading corporate governance framework, it may not always be suited to organisations that require different considerations to function cohesively. The NSAI Swift 3000 code provides an alternative governance framework and involves rigorous assessment of the board in areas including appointment, composition, competence, independence, remuneration, information, reporting, accountability and audit. In making use of any governance code to facilitate benchmarking or the review of governance processes, the board must avoid a ‘tick-the-box’ approach and should carefully consider what may be described as the softer elements, as outlined above. Conclusion As companies begin to challenge their existing governance processes and systems, the benefits should become evident. If implemented correctly, improved board effectiveness and outcomes will have positive impacts on the long-term sustainability and growth of the company. Justin Moran is Director, Governance, Risk & Internal Controls Division, Mazars.

Penelope Kenny outlines the ethics and governance issues that will likely be under the spotlight in 2017. As the new year takes off, social media is overflowing with reflections on the past year and learnings for 2017. Thoughts on governance and ethics take the long view and it is so delightfully tempting to make predictions. I propose to look at trends for 2017 based on recent developments, with consideration on where the trends may lead our thinking in 2017. This article addresses corporate governance and the ethics agenda. It attempts to identify trends and issues which professionals are likely to see unfold in 2017. Observations from the business of corporate governance Intense activity from legislators and enforcers continues apace. There have been recent updates to legislation; publications on corporate culture, corporate governance and stewardship; and Government requests for corporate governance reform. Of high impact and concern for individual directors and boards are:   The broadening of directors’ responsibilities; The roles and duties of directors being more thoroughly defined; The inclusion of ethics and culture in more corporate governance conversations; and The conversation between corporation and the State. These observations are based on new Irish legislation codifying directors’ responsibilities and recent reports from the Financial Reporting Council (FRC) in the UK. There is also heightened interest in ethics at the core of corporate governance conversations and this is evidenced in the observations contained in the FRC’s 2016 report entitled Corporate Culture and the Role of Boards, which is discussed further below. Directors are now more specifically accountable than before following the codification of directors’ duties and responsibilities in the Companies Act 2014. The new Code of Practice for the Governance of State Bodies, which was published in August 2016, makes directors specifically responsible for all internal controls: financial, operational, compliance and risk management. Previously, directors specifically reported only on the financial controls and the broader responsibilities were implicit. Corporate culture is also being defined as an area of specific responsibility for directors. Last July, the FRC published Corporate Culture and the Role of Boards and this interesting document comments that strong governance underpins a healthy culture. It also states that boards should demonstrate good practice in the boardroom and promote good governance throughout the business. The report examines some thought-provoking questions: How can the board influence and shape culture? How does the board bring corporate values to life? How can the board build trust with stakeholders? How can boards assess, measure and monitor culture? The report suggests that the tone from the top determines organisational culture and furthermore, boards should assess the culture and determine indicators thereof. The board is therefore responsible for the culture, values and ethical standards in their organisations. This gives directors the very broad responsibility of not only setting the culture and values, but also of measuring and assessing organisational culture. The report requests that investors and other stakeholders engage constructively to build respect and trust, and work with companies to achieve long-term value. Investors therefore need to consider carefully how their behaviour can affect the behaviour of the company and understand how their motivations drive company incentives. As board members, a brighter light is being shone on our broad responsibilities to the organisation and its stakeholders. We are also charged with the ongoing quest for effective measures of corporate culture and the implementation of corporate values throughout the organisation. Corporate and individual ethics In practice, the role of the board in “bringing values to life” is problematic. 61.5% of boards do not regularly make ethics and culture a full board agenda item according to the FRC’s report. Corporate values and ethics have been keywords in lamenting the recent large corporate scandals, which continue unabated at home and abroad. Media reporting focuses not only on corporate governance and the board, but on the ethical standards of the board and the individual directors. In an article published by Reuters last September entitled “Wells Fargo scandal reignites the debate about big bank culture”, it was reported that two former Wells Fargo employees filed a class action in California seeking $2.6 billion or more for workers who tried to meet aggressive sales quotas without engaging in fraud and were later demoted, forced to resign or fired. “Wells Fargo knew that their unreasonable quotas were driving these unethical behaviours that were used to fraudulently increase their stock price and benefit the CEO at the expense of the low level employees,” the lawsuit said. All this was reported in The Guardian in September 2016. Closer to home, Fintan O’Toole expressed his outrage in the Irish Times on 2 January 2017: “The appalling scandal in which the banks deceived at least 15,000 of their customers into moving from tracker mortgages to considerably higher interest rates, often at dreadful personal as well as financial cost. It is clear that this defrauding of customers was systematic and deliberate. It operated in 15 banks – essentially the entire Irish system – and so far as we know there is not one case of a “mistake” favouring the customer. It raises in the starkest way exactly what [Matthew] Elderfield was talking about: individual accountability for misselling and overcharging”. Apart from the human misery which we as a society are accepting, what this means for Ireland is that – despite our high levels of compliance and regulation – we have not created corporate and individual accountability nor a culture of ethical behaviour in our institutions. There is much to be done to align corporate culture and individual ethical standards. In Leading with Integrity: A Practical Guide to Business Ethics, Ros O’Shea firmly positions corporate ethics as the responsibility of the individual directors on the board. She links individual leadership values to the values which filter down through the organisation. This conversation is likely to gain momentum in 2017 with ongoing lawsuits and as we continue to further review, question and discuss our ethical guidelines and our own professional ethics. Corporate governance reform We can expect further corporate governance reform from the UK. Prime Minister Theresa May states that: “for people to retain faith in capitalism and free markets, big business must earn and keep the trust and confidence of their customers, employees and the wider public”. This quote is part of her introduction to Corporate Governance Reform: Green Paper 2016, which sets out a new approach to strengthen big business through better corporate governance. In the foreword, the UK Secretary of State, Greg Clark, summarises that “the green paper seeks views on three areas where we want to consider options for updating our corporate governance framework: first, on shareholder influence on executive pay, which has grown much faster over the last two decades than pay generally and than typical corporate performance; second, on whether there are measures that could increase the connection between boards of directors and other groups with an interest in corporate performance such as employees and small suppliers; and third, whether some of the features of corporate governance that have served us well in our listed companies should be extended to the largest privately-held companies at a time in which different types of ownership are more common”. Certainly the thinking in the UK, surmised from this report, indicates that Adam Smith’s Wealth of Nations is left far behind, and society and democracy are not separate from, but are an integral part of, the values and actions of corporations. The wider societal responsibilities of companies and boards are under scrutiny. There is a recognition, certainly in the UK, of companies’ responsibilities to employees, customers, suppliers and wider society. Diversity Diversity on boards remains an area of huge interest for researchers and policy-makers. We are starting to accept the causal link between board diversity and better profitability. The green paper referred to above suggests that board composition should better reflect the demographics of employees and customers. Implicit in that statement is a board more representative of the community it serves. According to a McKinsey report published in September 2016, workplace diversity would improve gross domestic product (GDP) in the UK: “Bridging the UK gender gap in work has the potential to create an extra £150 billion on top of business-as-usual GDP forecasts in 2025, and could translate into 840,000 additional female employees. In this scenario, every one of the United Kingdom’s 12 regions has the potential to gain 5-8% incremental GDP”. Robert Swannell, Chairman of Marks & Spencer, is quoted in the Hampton-Alexander Review of FTSE Women Leaders as saying: “I certainly believe having more diverse boards and senior teams is right and brings better perspectives, challenge and outcomes. It is right for business to reflect the world in which we operate and so we should just get on and do it”. Adam Smith’s support for maximising profits by harnessing employee expertise is replaced by boards, executives and management addressing and including the concerns of all stakeholders in the corporate world. Stakeholder engagement Considering the FRC statement below, directors are being charged with aligning the interests of business and society as part of their corporate governance responsibility: “We share the objective of wider stakeholder engagement by companies and are considering how corporate governance principles can best meet the demands of all stakeholders or be amended to do so. We look forward to responding to the Government’s consultation later this year and will propose measures to realign the interests of business and society… the FRC supports the need for change in the relationship between business and society. As the guardian of the UK Corporate Governance and Stewardship Codes, the FRC is keen to explore how it can ensure governance and investment are more closely aligned with the broad public interest”. This statement goes way beyond the corporate social responsibility (CSR) programmes which corporations heretofore were content with. Corporations are now charged with holding obligations to all stakeholders and being accountable to society as a whole. Similarly, directors are therefore held to account in relation to their obligations to all stakeholders. The UK Stewardship Code, while not updated since 2012, is under continuous review for its impact and implementation. Directors: some key concerns The broadening and better definition of the role and responsibility of directors is a likely interest area for the future as directors are increasingly responsible for a much wider range of legislation and compliance. Recent surveys show that role clarity, complexity, sustainability, changing business models, corporate culture and business reputation in the community are key concerns. Recent research undertaken by Chartered Accountants Ireland, published in the October 2016 edition of Accountancy Ireland and written by Mary Halton, suggests that role clarity in the boardroom is a driving factor in board effectiveness. It states: “In theory, this should be a relatively straightforward issue, particularly in light of the significant legal, regulatory and good practice guidance available. In practice, however, boards and their members face a number of challenges in delineating roles and ensuring that these are consistently understood by all”. Increasing complexity and the time commitment involved in non-executive directors’ roles is the key finding from a survey by the Institute of Directors in Ireland of 385 of its members in 2016. The Institute of Directors surveyed non-executive directors from private state and public boards. The Australian Institute of Company Directors, meanwhile, surveyed its members in December 2016 on the issues most likely to keep them “awake at night”. The results were identified as follows in order of importance:   Sustainability and long-term growth prospects; Structural change or changing business models; Corporate culture; Business reputation in the community; and Legal and regulatory compliance. Directors are not only showing interest in the business environment which delivers profits, but also showing an increased self-consciousness about themselves as directors and their roles and responsibilities. Formalising this trend, the board self-assessment questionnaires mandated by the Code of Practice for State Bodies 2016 requires boards and the audit and risk committees of state boards to self-assess for effectiveness. Corporation and the state In 2016, we saw the rise of a populist, anti-establishment voter. In Ireland, the water charges were an example. The tussle between states and corporations was exposed with the Apple Inc’s taxes and Deutsche Bank’s fines, both of which resulted in a dialogue between European and American legislative and tax authorities. As our corporations change their goals and purpose and our governments struggle with the corporate environment, this tectonic abrasion between corporations and governments looks set to continue. Conclusion Corporate governance reform is under way in the UK, and indeed in Ireland, against a background of government-led reforms. There is a corporate interest in being more responsible and more state-like. This suggests that the lines between corporation and state may be blurring. Boards are under pressure to represent a more diverse opinion and to mirror the communities which they serve. Meanwhile, these communities are becoming more vocal. Peter Cosgrove of CPL showed the recent Chartered Accountants Tech Forum how employees at Mozilla effectively fired their CEO, Brendan Eich, through social media pressure, which looks remarkably similar to a form of popular voting. (Eich maintained a public stance against gay marriage in 2014, and employees disagreed). Similarly, the US elections were beleaguered with accusations of corporations wielding influence on the outcome via large funding for the candidates. Certainly the future lies in greater regulation of corporations and greater expectations of corporate governance standards. This is occurring at a time when corporations are gathering more power, money and influence than sovereign states and at a time when the workplace is becoming more transparent and more democratised. Chartered Accountants are charged as professionals and often as board members to navigate in this increasingly political space – not just to direct and govern, but also to influence, guide and comment on compliance and regulation. The duties and responsibilities of board directors require more professionalism and more knowledge. We know our responsibilities do not increase or decrease with the size of the organisations we direct and govern, nor with remuneration for these roles, yet those responsibilities are expanding. The boundaries of the study and discipline of corporate governance itself are widening and shifting. We have seen from the UK Prime Minister’s comments on the reform of corporate governance that better corporate governance is seen as a driver for such issues as corporate responsibility, improved profits and more stakeholder engagement to name but a few. Interesting opportunities abound. Penelope Kenny FCA is author of ‘Corporate Governance for the Irish Arts Sector’, published by Chartered Accountants Ireland.