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FM Leadership Issue


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FM Leadership Issue

  1. 1. • October 2015 LEADER THOUGHT Dominic Barton, MD of McKinsey & Co, on the ‘new normal’ challenges facing the C-suite KATHERINE GARRETT-COX CEO, Alliance Trust LADY JUDGE Chair, the Institute of Directors SHEIKH BILAL KHAN Co-chair, Dome Advisory MERVYN KING Chairman, the International Integrated Reporting Council PAUL POLMAN CEO, Unilever
  2. 2. Financial Management | October 20154 CIMA is the Chartered Institute of Management Accountants The Helicon, 1 South Place, London, EC2M 2RB 020 8849 2251 President Myriam Madden FCMA, CGMA Deputy president Andrew Miskin FCMA, CGMA Vice-president David Stanford FCMA, CGMA Chief executive Charles Tilley FCMA, CGMA Head of reputation and communication Katie Scott-Kurti Financial Management is published for CIMA by Seven, 3-7 Herbal Hill, London EC1R 5EJ Editor-in-chief, finance Jon Watkins Group editor Eila Madden Commissioning editor Lawrie Holmes Editor Katy Ward Senior sub-editor Graeme Allen Senior designer Ciaran Christopher Head of design Richard Spellman Head of pictures Louise Fenerci Coverimage:ChristopherWahl/ContourbyGettyImages,AndySmith The new normal 3 A word from the president Myriam Madden FCMA, CGMA 6 Dominic Barton, global managing director of McKinsey & Co, on why business leaders need to look far beyond the next quarter’s results 13 Inform A digest of the latest developments in finance and beyond 16 Dame Fiona Woolf, former Lord Mayor of London, explains the “new normal” 18 How corporate CEOs are getting to grips with the problems posed by water scarcity 22 Opinion Chris Langdon and Nik Gowing assess the scale of the C-suite challenge 25 The data How long does the average S&P-500 chief executive last in the job? Thevalue of inclusion 38 Why truly inclusive organisations possess a crucial competitive advantage 40 Katherine Garrett-Cox, chief executive of Alliance Trust, on the dangers of groupthink 42 Which companies have accepted the clear case for diversity at board level – and are enough of them acting on it? 26 Professor Mervyn King HonFCMA reveals how Nelson Mandela inspired him to start the integrated reporting movement 30 CIMA’s CEO, Charles Tilley FCMA, CGMA, offers his perspective 32 Thinking Sheikh Bilal Khan on what the West can learn from Islamic finance 34 An interview with Lady Judge, the new chair of the Institute of Directors Rethinking the system Risingto the challenge 46 How the latest tools and techniques can help CFOs to manage amid uncertainty 52 Innovation Why the very best leaders know that listening skills are just as important as the power of persuasion 53 Must read The Ignorant Maestro: How Great Leaders Inspire Unpredictable Brilliance 5340326 This month’s FM is based on five key leadership themes: ‘The new normal’, ‘Rethinking the system’, The value of inclusion’, ‘Rising to the challenge’ and ‘Supporting future leaders’ Leadership special issue
  3. 3. 5Financial Management | October 2015 Picture editor Alex Ridley Head of video Jon Salmon Production manager Jo Friedman Commercial director Rupert Lane Account director Stefanie Hinten-Reed Head of commercial delivery Marie-Claire Frederick Advertising Kelly Baynes Samantha Goodman Tel: 020 7775 5578 Business director Emma Martin Managing director Jessica Gibson Chief executive Sean King Chairman Tim Trotter The contents of this publication are subject to worldwide copyright protection and reproduction in whole or in part, whether mechanical or electronic, is expressly forbidden without the prior written consent of CIMA/Seven. © Seven All rights reserved. Origination by F1 Colour. Printed in the UK by Polestar (Bicester). Subscriptions Tel: 01580 883844 £45 (UK), £54 (Europe), £72 (rest of world). Back issues: £7.50 (UK), £10 (rest of world) including postage, subject to availability. All payments should be in sterling drawn on a UK bank. Supporting futureleaders 54 Are too many graduates and school-leavers ill-prepared for the demands of work? 57 Study notes Case Study Exams at Operational, Management and Strategic level; F1 Financial Reporting and Taxation; and P1 Management Accounting 66 Watercooler Signing off with Churchillian wisdom 57 In this volatile, uncertain, complex and ambiguous world, good leaders need good information to make effective decisions that create value, enabling them to manage risk and seize new opportunities. With that in mind, this special issue gathers insights from some of the world’s leading thinkers in business, finance and academia. We start by analysing what our cover interviewee, Dominic Barton, refers to as the “new normal”, where received wisdom about the world no longer applies. McKinsey & Co’s global MD calls for a different form of capitalism in response – a theme echoed by Dame Fiona Woolf, a former Lord Mayor of London (p16), and confirmed by research that reveals the scale of the challenge (p22). In this new era, where business must take responsibility for the conditions that fund it, Paul Polman HonFCMA, Unilever’s CEO, is one of a handful of leaders to describe how they have taken ownership of a problem that goes far beyond corporate boundaries: water scarcity (p18). The next section examines the possibilities created by rethinking the system we work in. Professor Mervyn King HonFCMA recalls how Nelson Mandela persuaded him to restructure corporate governance in South Africa, resulting in his pioneering work on integrated reporting (p26). We also hear from Lady Judge, the first female chair of the UK Institute of Directors (p34), and from a doyen of Islamic finance, Sheikh Bilal Khan – who argues that the global financial system has barely improved since the crisis (p32). And CIMA’s CEO, Charles Tilley FCMA, CGMA, explains how the Global Management Accounting Principles can help CGMAs to give leaders all the strategic insights they need (p30). The subsequent section explores how inclusive leaders who foster trust and build relationships will succeed in the long term. US sustainability activist Dianne Dillon-Ridgley and Simon Langley, UK head of inclusivity and diversity at National Grid, make a compelling case for all companies to be inclusive (p42), while Alliance Trust’s CEO, Katherine Garrett-Cox, shares her experiences of building an inclusive culture in a 127-year-old financial institution (p40). The last two sections focus on how firms are rising to the challenge and supporting future leaders. In particular, we look at how leading CFOs, including ICICI Bank’s N S Kannan, use critical data to deal with uncertainty and risk. This special issue is a starting point for future editions conveying key messages about effective leadership and its underpinning behaviour and culture. It recognises the many challenges facing CGMAs, but also the opportunities that they, with the help of the Global Management Accounting Principles, can unlock. LawrieHolmes Editor’s note Please send your comments and ideas to editor@ or join the FM discussion group on CIMAconnect at connect.
  4. 4. visionCEOs are under too much pressure to deliver the next quarter’s results when they should be focusing on the value their companies can create in five years’ time. That’s the view of McKinsey & Co’s global managing director, Dominic Barton, who tells Lawrie Holmes about a growing movement to cure corporate myopia ChristopherWahl/ContourbyGettyImages 6 Financial Management | October 2015 THE NEW NORMAL
  5. 5. 7Financial Management | October 2015 THE NEW NORMAL
  6. 6. 9 DOMINIC BARTON 1980 Studies economics at the University of British Columbia, Vancouver, before taking an MPhil in economics under a Rhodes scholarship at the University of Oxford. 1985 Recruited as a currency analyst in London by investment bank Rothschild. 1986 Returns to Canada to join McKinsey & Co’s Toronto office and is elected as a partner after two unsuccessful applications. 1997 Relocates to Seoul to work in McKinsey’s South Korea office. 2000 Becomes head of the South Korea office. 2004 Promoted to the post of chairman of McKinsey’s Asia division, based in Shanghai. 2009 Elected by his fellow directors as global managing director of McKinsey & Co. 2010 Made honorary fellow of Brasenose College, University of Oxford. 2012 Re-elected to a second three-year term as MD. 2015 Re-elected to a third term. Financial Management | October 2015 THE NEW NORMAL F ew people are better qualified than Dominic Barton, the global managing director of the world’s most influential management consultancy, to comment on the challenges facing chief executives and their boards. So when Barton, who has held the top job at McKinsey & Co since 2009, expresses his concern about the global mega-trends affecting not only companies, but also the societies they operate in, business leaders would be well advised to take note. But the London-based Canadian notes that, although all these challenges may appear daunting at first sight, they also present a number of opportunities. “I have a strong feeling that the next 10 to 15 years are going to be extraordinary,” he says. “There are so many forces under way. For one thing, there is a big shift in economic power from the West to the East, where there are 2.2 billion new consumers in China, India and Indonesia – and also in Africa. That’s a massive force, which will prove stronger than the industrial revolution.” Barton is well placed to observe and analyse these trends as they develop. His consultancy has carved out a unique position in its field, having worked closely with corporate leaders all over the globe for many years. World traveller Barton, born in 1962 to a missionary and a nurse in Uganda’s capital, Kampala, has witnessed some of these seismic changes at close range, having been something of a globetrotter. After graduating from the University of British Columbia in Vancouver with an economics degree, he won a prestigious scholarship from the Rhodes Trust to pursue postgraduate studies at the University of Oxford. He started his career as a currency analyst at investment bank Rothschild before joining McKinsey’s office in Toronto in 1986. Having been elected a partner on his third attempt, he relocated to Seoul for a long stint running the firm’s Asian operations. His experience in Asia, which inspired him to co-write China Vignettes: An Inside Look at China (Talisman, 2007), is thought to have made him a strong candidate in the 2009 vote in which senior directors elect their managing director – a ballot that’s held every three years. Now serving his third consecutive term, Barton observes that the challenges facing companies are many and varied. Citing the “technology overload” factor as one example, he says: “Look at big data, the computing power revolution, 3D printing and biotech: these are moving three to five times faster than management is ready to deal with. Innovation is happening so quickly. Just as you get abreast of one element, it pretty much changes – especially digitisation. Technology is growing at such a phenomenal rate.” With an eye on the macro aspects of the mega-trends unfolding today, he acknowledges that businesses are facing a complex and difficult situation. “With lots of technological change, as well as an ageing population and geopolitical shifts, there are major challenges to our system,” Barton says. But he is also confident that a world posing multiple known and unknown challenges can be a profitable environment for those leaders who have come to terms with the new normal and the new thinking it requires. “All together, these challenges form valuable opportunities to companies – as long as they understand these shifts are happening in a volatile world,” Barton says. “Opportunities exist for those with a long-term view and a strong proposition of where they want to go. Companies have to consider their resilience factor. They need to employ health metrics and apply the kind of rigour that the Global Management Accounting Principles provide. He continues: “Boards need to be asking the relevant questions for today: what is the quality of the talent pool? What is the level of trust? What is the level of innovation? Ultimately, they need to be asking how much resilience they have for shocks, be they financial, operational, human or regulatory. These are just some of the factors that companies are having to think about. In the long term, it’s about staying power: can you zig when other people zag?” Companies need to make long-term investments to ensure that they can innovate effectively and create sustainable value, but a short-termist approach to strategy has taken hold, especially among plcs, according to Barton. This has developed largely because of investors’ demands for frequent progress updates and, particularly, the requirement on US companies to issue quarterly reports. ‘What’s great about integrated reporting is the measurement of the full performance of a company, not just its financial results’
  7. 7. “We have all become more short- termist – boards, CEOs, CFOs and investors – when there needs to be more long-termism,” Barton says. “It’s difficult to think about the long term because quarterly reporting incentivises companies against conducting research and development, training people and building resilience against shocks.” The good news is that some of the world’s biggest asset management companies are already seeing the virtues of long-termism, he says. “It’s hugely valuable that investors such as BlackRock, Canadian Pension Plan and Vanguard Group are getting out there to say ‘we don’t care about quarterly results’ and are encouraging boards and CEOs to apply longer-term metrics. ‘Quarterly’ should mean 25 years, not three months. I’m in favour of three-, five- or even 10-year metrics when investing in companies, because I think the publication of quarterly results makes things more volatile.” That argument really hits home when you make comparisons between the capital investment strategies of plcs and those of privately owned entities. Barton points out that privately held or family-owned firms “invest, on average, three times more than public companies do”. Fortune favours the brave A number of leaders of big publicly owned companies have not only shown that they understand the corrosive effects of short-termism, but have also been prepared to swim against the tide and do things their own way, according to Barton. “The declaration by Unilever’s CEO [Paul Polman HonFCMA] that the business would no longer publish quarterly results was a bold and courageous move,” he says. “Andrew Liveris, chairman and chief executive of Dow Chemical, is another example. He said publicly: ‘I could push up my short-term performance by cancelling long-term more of. I think IR’s measuring and auditing of results, by looking at areas such as sustainability performance and how much is invested in people, are key. What’s great about integrated reporting is the measurement of the full performance of a company, not just its financial results.” What is crucial in these interconnected areas is that business leaders are allowed to take the lead, argues Barton, who believes that thinking more broadly about the behaviour of companies is an important part of a leader’s remit. “It’s vital to do this,” he says. “And I think people are stepping up in this area – including investors, chief executives and their boards.” He cites the work of Sir David Walker, the former chairman of Barclays, who was appointed by the UK government to investigates standards of corporate governance at financial institutions in light of the 2007-08 financial crisis. “More recently, fund manager Schroders organised an event where Lady Lynn de Rothschild, CEO of investment company E L Rothschild, called for inclusive capitalism and declared that her business would not be focused on quarterly reporting,” he says. “Greater inclusion is what we need to be thinking about. There are a number of people looking at a more inclusive form of capitalism, working with a broader set of stakeholders.” Barton believes that the example set by businesses in Scandinavia, where there is a strong emphasis on social responsibility and sustainable capitalism, is a good model to emulate. “Companies there have a sense of collective responsibility,” he says. “They place importance on education and taking care of the not-so-well, but that doesn’t mean they’re not performance-driven.” So how is a successful business likely to be run in 10 years’ time? “The model of capitalism is starting to shift amid a recognition ‘“Quarterly” should mean 25 years, not three months. I’m in favour of three-, five- or even 10-year metrics’ ChristopherWahl/ContourbyGettyImages programmes such as R&D, training and various environmental activities. You’d see a very big short-term gain, but we would not be around in 10 years’ time.’” Attendees at a recent McKinsey business summit in New York, including 75 board members of leading companies and representatives from bodies such as CIMA, agreed to “push for long-termism, developing health metrics to make that happen”. If enough people, especially investors, can be encouraged to focus more on the five- to 10-year time horizon, Barton believes that there is room for CEOs to develop new thinking in this area. “There’s been a shift and I do think shifts like that will make a difference,” he says. When it comes to performance incentives, companies need to move away from short-term measures, he adds. “Not enough organisations have people health metrics, for instance. Integrated reporting (IR) is a great example of an approach we need to see 10 Financial Management | October 2015 THE NEW NORMAL
  8. 8. ‘The model of capitalism is starting to shift amid a recognition that, if it doesn’t adapt, it might eat itself… The system has been way too short-termist, but investors are starting to shake it up’ narrow system. We have to step back and look at how we fit in the whole system.” Barton also believes that many business leaders have a sense of fear that is restricting them from thinking freely. “When you’re getting pressure from board members and investors, it’s difficult to be bold, as this sense can overwhelm you,” he explains, adding that his overriding impression is that an imbalance of risk and reward gives leaders no incentive to make courageous and creative decisions. “We have to see how we can recognise and reward leaders who take the long view and are being bold – with board members backing them,” Barton says. “We need more voices supporting them in doing this.” For more information about the Global Management Accounting Principles, visit that, if it doesn’t adapt, it might eat itself,” Barton says. “From the 1970s until three to four years ago, the system has been way too short-termist, but investors are starting to shake things up. So I think there is a movement for change – and more business schools are starting to think along the same lines. Integrated reporting is very important for making this happen.” Despite these encouraging signs, he suggests that many leaders are still struggling to see the bigger picture. “Most of us think we’re working in a box,” he says. “A firm has its customers and regulators, and we assume it’s a McKINSEY & CO BY NUMBERS 11Financial Management | October 2015 THE NEW NORMAL today it has 107 offices in 61 countries. 1926 Founded in Chicago in McKinsey employs 9,000consultants and nearly 2,000research and information professionals, who speak 120+languages. Client base: 35%Americas 40%Europe 15%Asia Pacific 10%Middle East & Africa It’s owned and governed by 1,400partners, representing more than 70nationalities. It was voted 9thbest place to work in a 2015 poll of US and UK employees by online recruiter Glassdoor. Its revenue in the year to October 2014 was estimated by Forbes as $8bn.
  9. 9. 13 M ore than 60 per cent of business leaders are optimistic about the world’s economic growth prospects over the next three years, a survey by KPMG has found. Its “Global CEO Outlook 2015” research report also reveals that 54 per cent are more optimistic than they were last year about how well their businesses are likely to perform. For 47 per cent of respondents, cross-border expansion is a top capex priority between now and 2018. It also notes that 86 per cent of CEOs are worried about their firms’ ability to retain customers, 74 per cent fear the potential disruptive impact of new entrants to their markets and 73 per cent are concerned about the cost of regulatory compliance. “We know better than ever how interconnected we are in the global economy,” the report states. “Recent years have seen rapid change in established and emerging markets, high levels of geopolitical risk affecting major economies and the continued impact of a financial crisis that rippled around the world.” The research, based on interviews with more than 1,200 chief executives, also reveals that almost 80 per cent expect to increase their recruitment activities in the next three years, with “developing new growth strategies” a top priority. Chief executives ponder foreign expansion but fear customer disloyalty as confidence edges upwards GettyImages INFORMNEWS/OPINION/COMMENT/INSIGHT/ANALYSIS
  10. 10. 14 INFORM Financial Management | October 2015 THE PROBLEM I’m the new FD of the UK subsidiary of a European multinational. Group HQ is using a tax loophole in a way that wouldn’t stand up to scrutiny by HM Revenue & Customs. It is pressuring me to use this too in order to understate profits at my firm, which has just had its most profitable year yet. I want to explain to HQ why I would refuse to sign off on that. CIMA’S RESPONSE You’re right not to associate yourself with misleading information. Principles governing integrity (s110 of the code of ethics) and the reporting of information (s340) are at risk and there’s a potential breach of tax law. There is also a wider reputational risk should the public hear about such dealings. Alert the relevant board members, documenting your concerns. Your influencing skills will be key in helping group HQ to understand how crucial it is to take a long-term view of protecting the business. FOR THE CODE AND OTHER ONLINE ETHICS RESOURCES, VISIT WWW.CIMAGLOBAL.COM/ETHICS CIMA does not provide legal, investment, professional or career advice. No responsibility or liability whatsoever is accepted for any error or omission (whether or not arising out of negligence), or for any loss or damage sustained as a result of reliance on information supplied or comments made. EY calls on G20 to increase support for next generation of business leaders The governments of the G20 should implement business policies with clear goals for encouraging entrepreneurship, a research report from EY has urged. Youth unemployment remains at 16 per cent across the G20, according to “From classroom to boardroom: creating a culture for high- impact entrepreneurship”. Despite this, while 65 per cent of young people in those countries have ambitions to run their own businesses, only 15 per cent of existing entrepreneurs believe that their governments are properly supportive of this aim. “In pivoting education to focus on the tools and skills necessary for entrepreneurship, policies can support a culture supportive of entrepreneurship through a youth’s lifetime,” said Rohan Malik, global emerging-markets leader, government and public sector, at EY. “The challenge for policymakers is to uncover best-in-class policies to foster real improvement in entrepreneurial culture in their respective economies.” The report contains a number of other recommendations for producing the next generation of business leaders. These include the introduction of policies encouraging primary schools to teach commercial skills and fostering entrepreneurship programmes in secondary and tertiary education. To learn more about the effort to support future leaders by preparing young people better for the workplace, turn to page 54 This issue’s dilemma HOT POTATO COVERT HACKING THREAT WORRIES AMERICAN CFOS The risk of an undetected cyber-security breach is a key source of concern for finance chiefs in the US, a study by Grant Thornton has found. According to its “Summer 2015 CFO survey” research report, 57 per cent of the 912 finance chiefs polled are most perturbed about the potential for clandestine attacks on their IT systems. More than 40 per cent of those working in multinational companies fear losing sensitive data and intellectual property to cyber-criminals. “It’s the unknown and the undetected that is keeping executives on edge, according to our data,” said Skip Westfall, co-leader of Grant Thornton’s cyber-security practice group. “It’s easy for companies to say that they are being proactive about cyber-security. But, when executives don’t know exactly what the next breach could look like, that adds to their level of anxiety.” To learn more about risk mitigation in a digital environment, read the Opinion piece by Nik Gowing and Chris Langdon on page 22 Shutterstock THE NEW NORMAL
  11. 11. 15Financial Management | October 2015 CIMA and AICPA issue advice on ethical strategy ON CGMA. ORG For chartered global management accountants, the following content is available online Senior chartered global management accountants should play a leading role in ensuring that their organisations’ policies on ethics are effective, according to new CGMA guidance. The “Implementing an effective corporate ethics policy” tool is designed to help senior leaders formulate their strategies in this area by offering five case studies and a series of key questions to consider ( “Communication of a company’s ethics policy never ends,” the document states. “Quality is key, as constant communication that lacks focus or relevance is more likely to irritate than persuade. The most successful ethical organisations embed high-quality communications across the business.” The guidance recommends that companies should not consider online courses in how to deal with serious issues such as bribery to be an effective substitute for face-to-face training. It also argues that the ultimate test of the effectiveness of an ethics policy is whether or not any employee would feel comfortable enough to air an ethical concern, safe in the knowledge that the organisation would respond appropriately. Download your free FM app for the following exclusive content: IN THE APP... DIFFERENT MASTERSTROKES: Watch an exclusive video presentation tracing the advances achieved over the years by the movement for diversity and inclusivity in business. BUSINESS BRAIN-SCAN: Do effective leaders think along similar lines? Take a peek inside the minds of successful CEOs and CFOs as we probe the psychology of leadership. TALES OF THE UNEXPECTED: How scenario planning and pre-mortems can help leaders to cope with any eventuality in an uncertain sociopolitical and economic environment. Download the FM app from the Apple App Store, Google Play or Amazon Shutterstock Blue-chip CEOs showpayrestraint More than a third of FTSE-100 chief executives did not receive a pay rise this year, according to figures from PwC. Its research report, “Taking stock – review of 2015 AGM season”, reveals that the median reported base salary of a FTSE-100 boss is £891,000. The median annual bonus is £1.12m. It also states that the UK’s large-cap firms are improving transparency with respect to bonus disclosures and, by adding clawback provisions, requiring executives to hold their stocks for longer. Tom Gosling, executive pay partner at PwC, said: “There’s been growing dissatisfaction with long-term incentives, which are often seen as a lottery and too complicated. In response, companies are looking for performance measures that more closely link to strategy. At the same time, they’re satisfying shareholder demands by increasing the length of time that shares must be held.” World-class finance: better analysis, less cost, fewer people With fewer staff devoted to compliance, the top finance teams can spend more time and money on forward-looking duties. Six ways to become more resilient to cyber-security threats Despite efforts to do a better job handling cyber-threats, financial institutions worldwide are still outdone by nimble cyber-criminals. Here are tips for how they can become more resilient. Lack of career clarity hinders employee retention Seventy-eight per cent of workers say they would stay longer with employers if they had a defined career path, according to a survey by Mercer. Membership of EU good for British business, CIMA poll says British voters have been promised their say on whether the country should remain part of the EU in a referendum due to take place by the end of 2017. Decision-makers not always relying on financial planning and analysis for business problems Decision-makers still go with their gut instead of relying on financial planning and analysis, according to research from CEB. Fraud costs UK companies an estimated £103bn per year Companies could gain a significant advantage by measuring, managing and minimising their losses to fraud, which are equivalent to 5.6 per cent of expenditure. THE NEW NORMAL
  12. 12. Dame Fiona Woolf, Lord Mayor of London last year, offers her view of the ‘new normal’: a world of huge challenges – but also great opportunities – for municipal leaders and businesses in cities Capital project How do we make our cities successful for the long term? It’s a challenge made all the more daunting by the “new normal” of climate change, resource scarcity and urbanisation. The good news is that it’s not all bad news. Municipalities that can adapt and plan effectively for the long term will find plenty of opportunities to prosper under such circumstances. But, to my mind, their sustainable success will depend on a clear vision about what cities are for. I believe that they are factories of the mind, driving innovation, creating wealth and providing equality of opportunity in education and employment. Thriving cities will always be full of industry, stimulation and variety – and they will always be victims of their own success, because they are magnets to the planet’s fast-growing mobile population. 16 Financial Management | October 2015 THE NEW NORMAL
  13. 13. RickPushinsky,GettyImages Some people see this population growth as a challenge. I see it as a huge opportunity. Every citizen matters – the wealth that we all create together is what makes our cities valuable. The starting point of any urban development plan must therefore be to consider what the people need in order to make their city as successful long into the future as it has been in the past. Complex challenges As optimistic as I am, I do understand people’s reservations about the rate at which the world’s urban population is expanding. The statistics are dramatic: the global population is forecast to reach nine billion and the urban population 6.3 billion by 2050. The Organisation for Economic Co-operation and Development predicts that three billion people will form a new middle class in Africa and Asia by 2030 – a transformation far greater in scale and speed than that created by the industrial revolution. Such an upheaval will create complex long-term challenges for municipal and business leaders in areas as wide-ranging as finance, ethics and diversity. Capitalism must pioneer sustainable models of finance that deliver long-term value and are fit to serve the spiralling urban population. Financing, particularly private-sector investment, will be a key component in the development of tomorrow’s cities, as will smarter design and delivery in areas such as power, sanitation and transport. This is why I launched a programme called Tomorrow’s City when I was Lord Mayor of London in 2013-14. This initiative brings together leaders across a range of fields to explore how we can work together on innovative approaches to tackle the challenges of urban planning under the new normal. For our cities to be successful, the organisations inside them need to create value for society as a whole. That will require them to behave responsibly and with integrity from top to bottom. Products and services should be designed to meet consumers’ genuine needs. Similarly, every shareholder needs to be a good custodian to ensure that prosperity is shared. This is why we need to ensure that market mechanisms encourage companies to approach value creation in the right way, as identified by John Kay in his 2011 government-commissioned review of UK equity markets and long-term decision-making. Improved company reporting is one such mechanism and it’s an area that I have explored in collaboration with Mervyn King HonFCMA, chairman of the International Integrated Reporting Council. Because issuing quarterly reports can lead to an excessive focus on short-term gains for investors as opposed to the longer-term benefits for society as a whole, some big companies have stopped the practice. Unilever is one such company. As its CEO, Paul Polman HonFCMA, says: “We are in the business of maximising returns, but we can maximise social and environmental returns too.” This is a vision of enlightened capitalism that everyone in the financial sector should adopt. Embracing diversity Mass migration to cities around the world is creating urban populations with a rich mix of cultures, skills and experiences. Employers need to embrace all these new city dwellers. There has always been a moral case for inclusion but there is now a clear business case. Our cities will lose out if they do not realise the benefits of diversity – fresh perspectives, originality and innovation – by enabling talented people from all backgrounds to get to the top. This change will not happen over night, but we need to ensure that businesses employ a true meritocracy so that the best succeed, regardless of gender, race, sexuality or nationality. It’s one thing to have diversity, but quite another to make the most of it. If we don’t harness all these different perspectives, who will come up with the innovations we need in order to capitalise on the huge opportunities offered by the new normal? For more from Dame Fiona Woolf, see page 42 ‘Thriving cities will always be full of industry, stimulation and variety – and they will always be victims of their own success, because they are magnets to the planet’s fast-growing population’ 17Financial Management | October 2015 THE NEW NORMAL
  14. 14. Financial Management | October 2015 THE NEW NORMAL AQUEOUS SOLUTIONS 18
  15. 15. Illustration by Kyle Smart Financial Management | October 2015 THE NEW NORMAL “Almost a fifth of the world’s population – about 1.2 billion people – live in areas where fresh water is scarce. Under the existing climate-change scenario, almost half of the population will be living in areas of high water stress by 2030. Consumer demand for water has doubled since 1950 – and it’s predicted to double again by 2030. The consequences for food security, health and living conditions are substantial.” So says Paul Polman HonFCMA, chief executive of Unilever, describing what’s arguably the most serious climate-change risk facing businesses. He is one of a small number of corporate leaders who have been prepared to speak openly about how their firms are responding to the direct threat of a global reduction in the supply of fresh water. In doing so, they are drawing attention to a problem that affects communities across the planet. Polman, who has consistently spoken out on sustainability issues since his appointment in 2009, adds: “Our forecasts show that consumers’ increasingly limited access to water already negatively affects economic growth in developing and emerging markets. Seven of our biggest markets – including India, China and Indonesia – are already categorised as water-scarce. That is not good news for our business, but it’s a personal crisis for each and every family affected.” Reflecting on the group’s broad portfolio of brands, he says: “While continuing to invest in products that are more water- efficient, we’re also exploring options beyond our traditional business model by investing in solutions for communities. If we can inspire people to take small everyday actions, it can add up to a big difference.” Unilever’s position on water scarcity fits with the group’s 2010 “Sustainable living plan”, which aims to double the size of the group’s business while reducing its environmental footprint and increasing its positive impact on society. “As part of the plan, we are working towards ambitious targets for water-related challenges,” says the man in charge of Unilever’s Wash (water, sanitation, hygiene) agenda, Nitin Paranjpe, global president of the company’s home care business. select band of CEOs are addressing a risk that extends far beyond the realms of business. But, as Lawrie Holmes reports, they cannot solve the problem of water scarcity alone As well as setting targets to reduce the amount of water consumed in manufacturing and using Unilever goods, the plan covers key areas of social development – including the empowerment of women in water-scarce regions. “It’s estimated that women spend 200 million hours every day collecting water. This is time they could be using to earn an income, get an education or support their communities – all progressive changes that can support women’s empowerment,” he explains. “Our home care business has a hugely important role to play in the transformational change needed.” The company has researched consumers’ water usage habits and tested out ways to change their behaviour. It’s using its findings, along with innovative technology, to develop more water-efficient products. The aim is to enable women to spend more time on work, education and/or childcare, while conserving water for other important uses. Its R&D efforts are heavily focused on laundry products, household cleaners and toiletries, because these goods account for 99 per cent of the consumer-use phase of the company’s water consumption. Unilever has further plans to advance the debate on water scarcity. “Business as usual is not an option,” Paranjpe says. “The key now, after the launch of the sustainable development goals agreed by UN members at its 2012 Rio Earth summit, is to measure the goals and define who is accountable globally for achieving these. Only then will we see progress.” A change is brewing SABMiller, the world’s second-largest brewer, has also taken the initiative in addressing water scarcity. From end to end, the beer-production process relies heavily on water. “We want a resilient world in which our business, local communities and ecosystems share uninterrupted access to safe, clean water,” says the group’s chief executive, Alan Clark. “The business case for conserving water, both within our own operations and in the communities where we work, is clear and compelling. Water stress is holding back prosperity and growth. Tackling it can release untapped prosperity at every 19
  16. 16. Financial Management | June 201320 ‘Water scarcity needs to be addressed alongside food and energy security, with businesses, governments and communities working in partnership’ Financial Management | October 2015 THE NEW NORMAL level, from rural and urban livelihoods through to business growth and entire national economies.” The South African, who was appointed to the top job in 2013, adds that businesses are still too focused on their own operations, suggesting that only by working with local partners and communities can they achieve effective change. “No sector of society can solve all the water challenges on its own,” Clark says. “The risk cannot be tackled in isolation. It needs to be addressed alongside food and energy security, by businesses, governments and communities working in partnership to develop practical solutions at a local level.” SABMiller’s approach to the problem has a number of elements, according to Anna Swaithes, its director of sustainable development. “The group aims to secure the water supplies we share with local communities through partnerships to tackle shared risks. It also seeks to reduce its water consumption to 3 litres per litre of beer produced and 1.8 litres per litre of soft drink.” She continues: “Our bespoke risk-assessment process helps us to understand the nature and extent of local water risks better. It gives us a detailed, watershed-level, site-by-site picture of our exposure. Our breweries are able to identify and prioritise risks using this data and so develop and implement mitigation action plans.” Percentage proof Carlsberg, another leading brewer, has also been making concerted efforts to improve water efficiency at its production facilities, as its corporate social responsibility manager, Wouter de Groot, explains. “As part of our environmental commitments, we’re working towards a 2017 goal of reducing relative water consumption by 5 to 10 per cent compared with 2014 levels,” he says. “Our main focus is to improve our water efficiency continuously in our breweries. We have also put in place dedicated programmes at those of our sites that are subject to seasonal water scarcity. In addition, we are looking at various options to engage with stakeholders, including civil society organisations, governments and industry partners, to address water scarcity issues upstream of our breweries and improve integrated water resource management.” Because Carlsberg operates in several regions where water is scarce, the group conducted a risk assessment in 2013 to gain a better understanding of the specific problems affecting those territories and identify mitigating actions. De Groot cites a city in western India as a key focus for regional water-saving measures. “Owing to lower-than-average rainfall in the past two years and urbanisation in Aurangabad, where Carlsberg India has operations, the general demand for water has increased,” he says. “This has reduced the availability of water for our production process and resulted in the need to bring it in via tankers. In response to this challenge, we are implementing our total water management concept to reduce consumption and ease the pressure on local resources. We have invested in new equipment, including a pioneering water-recycling plant, that will make our Aurangabad operation one of the world’s most water-efficient breweries.” De Groot adds: “Projections based on global trend data indicate that some sites will be subjected to more water stress within the next 10 years, so we continue to work on targeted efficiency initiatives to mitigate this.” Carlsberg and SABMiller are members of the Beverage Industry Environmental Roundtable (Bier), a technical coalition of global drinks companies co-operating to reduce their industry’s environmental footprint. The body is working to create a tool to calculate the “true cost of water”. Coca-Cola Enterprises (CCE) is another member of Bier. The company, which manufactures, markets and distributes Coca-Cola products in western Europe, has been embedding sustainability into its core business for a decade, according to its CFO, Nik Jhangiani. “We’re proud to have pioneered a shift from accountancy towards an active response in many sustainability-related areas – carbon, water, recycling – and we hope that other businesses will follow this lead,” he says. “Sustainability brings us many benefits, helping to capture operational efficiencies, eliminate waste, drive innovation, deliver for our customers and significantly increase employee engagement.” 20
  17. 17. Financial Management | October 2015 THE NEW NORMAL CCE has set itself a target of using 1.2 litres of water to make a litre of Coke by 2020. The current average is 1.36 litres, which is 17 per cent less than it was in 2007. To achieve this reduction, the company has made its manufacturing and cleaning processes more efficient. Since 2011 it has invested $2.8m in process optimisation and technologies such as water meters, water mapping, and monitoring and targeting systems. Trickle-down theory Claudia Ringler, co-leader of the International Food Policy Research Institute’s water programme, says that the real and obvious threats posed by water scarcity to the beverage industry have prompted its big players to convert rhetoric into action. But she notes that the list of companies that can make a difference stretches far beyond that single sector. “First and foremost, this list covers the private irrigation sector,” she says, explaining that “all farmers are private irrigators with control over the water they get. The sector encompasses privately owned sugar cane companies in Africa that not only use a lot of water but also pollute it.” Ringler, who also plays a leading role in the research programme on water, land and ecosystems run by the Consultative Group for International Agricultural Research, says that all these groups need to be encouraged by governments and regulators to take positive action. “Big polluters, such as agrochemicals companies, generally can be encouraged to clean up their acts if enforcement action is effective. Cleaning up big mining operations could make a difference. Energy producers tend to use a lot of water, too,” she says. Clearly, firms in a range of thirsty sectors can develop sophisticated responses by following the example set by the pioneers, as Clark observes: “Companies of all sizes and from all industries need to step up on addressing water security. Well-known brands can enhance awareness of the challenge but it is equally important to drive real change at a local level through collective action.” The voices of the few who are willing to lead is only the starting point, Polman adds. “When you look at an issue like water scarcity, it is clear that no individual institution, government or company can provide the solution. In order to achieve the type of transformational change needed to create a systemic and sustainable impact, we recognise that we must work in partnership with other interested stakeholders who share our commitment.” Jhangiani observes that key global development challenges must be addressed urgently if the needs of future generations are to be met. “The limited availability of natural resources, the long-term impact of climate change and the inevitable strain on public services will all have noticeable implications,” he says. “We need to work together – governments, businesses and civil society – to find the sweet spot between commercially positive and environmentally positive. He adds: “There’s little doubt that the companies embracing and embedding sustainability will be more resilient over time. Ultimately, it is these stories of success in combining profit and purpose that will help the worlds of finance and sustainability to talk a common language.” CIMA, a founder member of the Natural Capital Coalition, has published a report entitled “Accounting for natural capital: the elephant in the boardroom” with IFAC and EY. To download a copy, visit ‘When you look at an issue like water scarcity, it is clear that no individual institution, government or company can provide the solution’ 21
  18. 18. 22 Thinking the unthinkable has to be routine for the leaders of all organisations, given the scale and pace of change they are facing, argue Nik Gowing and Chris Langdon W hy did so many at the very highest levels in leadership roles fail to anticipate the financial crash, the migration crisis, President Putin’s takeover of Crimea, the precipitous fall in oil prices, the rise of Islamic State or the threat of cyber-hacking? What is it that inhibits the current generation of leaders from thinking the unthinkable? These are uncomfortable questions, to which we sought answers for the Churchill 2015 21st Century Leadership Programme, set up to commemorate the 50th anniversary of Sir Winston Churchill’s death. We have had close support from CIMA and the Chairmen’s Forum. Since February we have conducted in-depth off-the record conversations with 60 of the highest-level leaders from the worlds of business and finance, government, the military and the humanitarian sector – and members of the coming generation of leaders: the millennials. In a confidential setting they shared thoughts they might be reluctant to air in the presence of their immediate peers. Throughout we were in listening mode and deliberately non-prescriptive. Our aim in just over six months has been to accumulate a revealing new data set of frank assessments from the highest levels. Our report, “Thinking the unthinkable: a new imperative for leadership in the digital age”, is due to be published at on 13 October. It summarises the thoughts, fears and ambitions of the leaders we interviewed. It also draws on ideas from panels hosted at business leaders’ conferences. Additionally, there were numerous spontaneous conversations with leaders, plus participation in gatherings with the coming generation of millennials. Opinion LyndonHayes/DutchUncle Financial Management | October 2015 THE NEW NORMAL Nik Gowing is a former news broadcaster at the BBC and ITN. He is now a visiting professor in the faculty of social science and public policy at King’s College London Leaders were remarkably frank about the new frailties and the dilemmas of how to adapt smartly their own skills and organisations to cope with what most – but not all – saw as unprecedented social, political and economic upheaval. By and large, it was felt that mindsets, behaviour and systems are not adequately calibrated. “Some CEOs are scared stiff. We must be disruptive, taking risks and challenging the status quo,” said Paul Polman HonFCMA, Unilever’s CEO, one of the few to go on the record. Without exception, all the insights they shared confirmed a clear direction of travel. Indeed, many urged that we dig even deeper because of the scale of challenge and vulnerability for executive behaviour. At this stage we did not consider it appropriate to suggest solutions. First should come a wider debate on the scale of the problems. Given that there are 23,000 books covering leadership on Amazon, there’s no shortage of proposed solutions. The most salient point from the research is that a convergence of previously unthinkable events has left leaders with a sense of vulnerability, never before experienced, since the financial crisis. Worse still, lessons may have been learnt, but for most part they have not been acted upon. Carl Bildt, drawing on his experience as Sweden’s foreign minister, called 2014 “the great wake-up” for governments and corporations, reflecting the private view of many at that level. Alarm bells have been sounding again in 2015, with the unpredicted scale of Europe’s migration crisis, the Greek economic crisis and too many damaging cyber-attacks to list. Why do leaders continue to be so reluctant to conceive of unthinkables that then happen? We conclude that frequently it was simply unpalatable for them. They and those who worked for them were often in denial. Of course, not all disruptive trends are bad for business. The global diffusion of smartphones and driverless cars, and the much-anticipated developments in 3D printing and the peer-to-peer “sharing economy” all bring benefits – at ever-faster speeds. Yet they also pose key challenges for corporations and governments to modify existing
  19. 19. 23 mindsets and systems to cope at high speed in ever-shortening timeframes. Many leaders admit to their struggle to first realise and then adapt to the rapid disruptive shifts emerging. One of the most telling interviews was with 27-year-old Aniket Shah, a remarkable millennial who has already had careers in asset management and banking, and is now in international development. Going on the record, he told us: “All these organisations that we once held in high esteem and revered tremendously are dying a very slow, painful death. Now we find ourselves… slightly stunned, slightly stultified… We look up and we know exactly what these people do, as we live in a transparent world. And we say: ‘You know what? The emperor has no clothes and we can do this a lot better.’” Our meetings with millennials confirmed that he spoke for many from this next generation of high-flyers, who are showing by their career choices their negative view of a future in big business or government. Aware of this, a number of chief executives said they wish to engage with generation Y’s concerns. They appreciate how a greater focus on purpose and value will forge constructive relationships with future leaders. One key explanation for current leaders’ failures to address unthinkables is wilful blindness. That is not new or unknown. More worrying is that, in many cases, it has yet to be factored into executive calculations. It is one of the following key words and phrases that recurred in our conversations: l “Groupthink” / “wilful blindness”. l “Being overwhelmed by multiple intense pressures”. l “Cognitive overload and dissonance”. l “Institutional conformity”. l “Risk aversion”. l “Fear of making career-limiting moves”. l “Reactionary mindsets”. l “Denial”. Nearly all those we spoke to mentioned the need for organisational change in what many called a “VUCA world” (volatile, uncertain, complex and ambiguous). But almost all interviewees confirmed that a culture of conformity was the key obstacle to thinking unthinkables. If mid-level executives Financial Management | October 2015 THE NEW NORMAL Chris Langdon is head of Reconciliation through Film and the former MD of the Oxford Research Group ‘A convergence of previously unthinkable events has left leaders with a sense of vulnerability that they have never before experienced’ are not confident in their jobs or are concerned about career progression, they are likely to conform to get ahead. As a result, many organisations are increasingly afflicted by a “frozen middle” that “lacks muscle”. Organisations must create scope to address the scale of “wicked problems” that cannot be solved by a leader alone. This requires new forms of more adaptive leadership to build resilient organisations where challenge and collaboration are built into the culture and thinking unthinkables is not a career killer. “You ask: ‘Is it a new challenge? Is it serious?’ Yes, I think so,” said the head of a large international organisation. “I’ve been at the executive level for 10 years and I’ve worked in this environment for quite some decades. It’s by far the most challenging time [for the organisation] in modern history.” He went on to describe vividly the deep internal challenges he faces as a leader in breaking down silos and addressing vested interests to create an organisation capable of surviving in an increasingly demanding environment. What do these findings mean for management accountants? We heard how the role of management accountants is changing, as algorithms increasingly do the counting. But, while there is scope and a need for management accountants to take on a challenge function, they need to overcome new hurdles in terms of resourcing and an enabling culture. CIMA is already leading this debate. A publication on leadership, in co-operation with CIMA, will be announced shortly. The key message to take away is not just a recommendation, but a necessity: the pre-2008 and pre-2014 “thinking” must be regarded as destructive and no longer fit for purpose.
  20. 20. Financial Management | May 201325 INFORM 25 Source:“CEOsuccessionpractices:2015edition”,TheConferenceBoard. Illustration by Leandro Castelao Thedata An improvement in corporate performance and GDP growth in the US since the recession of 2008-09 has helped to reverse a general decline in average CEO tenure throughout the noughties, according to figures from research body The Conference Board. In 2009, towards the end of the slump caused by the financial crisis, the average CEO in the S&P 500 stayed in their job for just over seven years. This was the shortest term observed by The Conference Board since it started tracking the figure – well down from the 2002 peak of 11 years. It has rebounded strongly since then: last year the mean term of office was back to nearly 10 years. CEOs regain some staying power Financial Management | October 2015 THE NEW NORMAL
  21. 21. Madiba’sprofessor Mervyn King HonFCMA can trace his work on integrated reporting back to a conversation with Nelson Mandela. He tells Lawrie Holmes how his quest to reshape corporate governance in South Africa gave rise to a concept that’s being applied all over the world PeterSearle 26 Financial Management | October 2015 RETHINKING THE SYSTEM
  22. 22. 27 ‘When Nelson Mandela came out of jail, I was one of the 12 people he invited to lunch’ T here is a growing acceptance among business leaders that integrated reporting (IR) represents an innovative means by which their companies can better measure and communicate how they are faring. And the benefits of IR do not stop there: by indicating clearly how firms are performing on several fronts, it can also help them to reduce their environment footprint. What is less known about IR is that its roots lie in a friendship between its architect, Professor Mervyn King HonFCMA, and arguably the most respected civil rights campaigner and statesman of the late 20th century, Nelson Mandela. King came up with the concept after being asked by Mandela, who was soon to be elected president of South Africa, to redraw the nation’s corporate governance system for a society starting to emerge from the fast-crumbling apartheid regime. The relationship between King and Mandela began during the darkest days of apartheid, when they both practised law in Johannesburg in the mid-1950s. After the leader of the banned African National Congress (ANC) opposition party was sentenced to life imprisonment for sedition in 1962, King continued in the legal profession until resigning as a judge in 1981 after a disagreement with the then prime minister, P W Botha. At that point he entered the commercial arena. “I knew Mandela from before he went to jail because he and Oliver Tambo – the future leader-in-exile of the ANC, which eventually brought the apartheid regime to an end – had an office opposite the magistrates’ court that I attended daily as an articled clerk,” King recalls. “When he came out of jail in 1990, I was one of the 12 people he invited for lunch, because I’d been the chairman of [relief and development NGO] Operation Hunger while he was inside. From then on he would phone me from time to time to discuss issues. We spoke when the “We had a very special set of circumstances,” King explains. “Most of our citizens coming into the mainstream of the economy had never been there before, so we had to find something that was palatable to them.” The result has been a series of publications that have not only shaped the nation’s corporate governance but also influenced the world’s thinking on how companies and other organisations should be led and managed. “The first report came out in 1994. The next – which recommended to the JSE that there should be sustainability reporting based on the guidelines of the Global Reporting Initiative (GRI) – came out in 2002,” he says, explaining that the work of two US academics, Allen White and Robert Massie, who called for better reporting standards on intangible assets, was a key influence. “They started to develop indicators that developed into the GRI.” King’s views on reporting started to gain wider recognition at the 2002 United Nations Earth summit in Johannesburg, where he “spoke about corporations having to start reporting on sustainability. I suggested that the GRI’s guidelines be adopted.” A subsequent invitation from the UN’s then secretary-general, Kofi Annan, to address its own governance standards prompted King to chair a committee on the issue. “The UN took the best material from this and put it in the standards of its various agencies,” he recalls. At this juncture the International Federation of Accountants (IFAC) Johannesburg Stock Exchange (JSE) approached me in 1991 about forming a committee to write new guidelines on how to direct and manage companies for our fellow citizens. I told Mr Mandela that I was very busy, but he said that I should do it. ‘You’re the right man,’ he told me. ‘But make sure nobody gets paid [to serve on your commission].’ I did – and that remains one of my criteria to this day. Everybody, hand on heart, acts on the King committee in the interests of South Africa. As a result, I have always had the most extraordinary people on my committee.” King adds that its work enabled South Africa to “move from an unequal opportunities society to an equal opportunities society over night” in how to direct and manage businesses. During this period the UK had experienced in quick succession the collapse of the fraud-ridden Bank of Credit and Commerce International and the revelation that media tycoon Robert Maxwell had plundered the pension funds of his own firms before his mysterious death in 1991. Such scandals prompted the government to appoint Sir Adrian Cadbury, then chairman of Cadbury Schweppes, to conduct a review of the financial aspects of corporate governance in the UK. The Cadbury report and code of best practice was published in late 1992. “Adrian gave me some great advice,” King recalls. “He told me not to disband my committee as his had disbanded, because mine was dynamic. So I didn’t – and we have met every quarter since 1991. That has kept the King committee right up to date and, in his words, at the forefront of the world.” Out of the wilderness The desire to push on with the committee was fuelled partly by an understanding of the importance of reconstructing South African society. Financial Management | October 2015 RETHINKING THE SYSTEM ‘A company developing its strategy has to think on an integrated basis… You can’t separate all these things’
  23. 23. ‘To be accountable you have to be understandable. I developed that phrase because there was a realisation in the corporate world that for years we had been reporting in an incomprehensible language’ stated that financial reporting alone was insufficient, because such disclosures could never reveal 70 to 80 per cent of what was actually happening in a company, King says. This led to the development of sustainability reporting, but the problem was that firms started doing this completely separately from financial reporting. “One wasn’t talking to the other,” he says. “The reality was that in managing a business we’d be dealing daily with six resources, or capitals. We wouldn’t put our human capital in one room, our natural capital in another and our intellectual capital in a third, with financial capital in yet another. They’re interrelated. It was extraordinary that we were managing businesses on an interconnected basis, yet reporting in silos. This, to me, was unthinkable.” In 2009 the King commission produced its third report – this time on the principles of integrated thinking and reporting. Firms listed on the JSE are required to comply with its provisions. The publication of what’s become known as King III prompted the UN to call a meeting at its headquarters in Geneva, inviting the head of the World Bank, the chairmen of the big four auditors and IFAC’s president and chief executive. “Everybody seemed in agreement that this was the way forward,” King says. “The next issue was how to gather together a ‘who’s who of corporate reporting’ to see whether they were on the same wavelength or not.” Five years previously, HRH the Prince of Wales had launched the Accounting4Sustainability initiative, which talked in terms of “connected reporting”. Many of its principles seemed to resonate with those of IR. “I thought there must be a connection,” King says. “I took a call from Sir Michael Peat, the prince’s principal private secretary, that led to a meeting between him, Paul Druckman (then president of the ICAEW) and me in my capacity as chairman of the GRI.” The prince went on to convene a summit that brought together organisations including IFAC, CIMA, the World Bank, the International Organization of Securities Commissions, the International Accounting Standards Board, the US Financial Accounting Standards Board and the World Wide Fund for Nature. The eventual outcome of this was the formation in 2010 of the International Integrated Reporting Council (IIRC), of which King and Druckman would become chairman and CEO respectively. Warren Allen, who would go on to serve as president of IFAC in 2012-14, described integrated reporting as a “train leaving the station”. He meant that any organisations which weren’t on board for its departure would need to find a way to catch up. Sustainable imperative King argues that the need for a body such as the IIRC has been justified by a number of global problems. “Surrounding us are financial crises, such as that in Greece. And then you have a climate-change crisis that is quite extraordinary. Ecological overshoot – where natural assets are being consumed faster than the planet can regenerate them – is a stark reality,” he says. “The other mega-trend is radical transparency through the use of social networks. Do companies really think that they can still hide things away in their corporate closets?” Another reason why IR is gaining in popularity is the growing acceptance that companies need to communicate more clearly with their stakeholders. “To be accountable you have to be understandable,” King says. “I developed that phrase because there was a realisation in the corporate world that for years we had been reporting in an incomprehensible language. How can you help people understand so that they can make informed assessments about the state of a company? An asset owner has to make an informed assessment that they should invest their ultimate beneficiary’s money in the equity of a company and it’s going to maintain value creation in a sustainable manner in the long term. The answer is that a company developing its strategy has to think on an integrated basis, so the real driver is becoming integrated thinking. You can’t separate all these things.” ChrisRenton 28
  24. 24. participants in IR networks worldwide 750 <INTEGRATED REPORTING BY NUMBERS> businesses worldwide are using IR 1,000 businesses and investors have been involved in the IIRC pilot programme, of participants in the IIRC pilot have an improved understanding of value creation, 140> 92% 79% There are more than reporting improvements in their decision-making with More than countries <26 from With respect to the relationship between business and society, King disagrees fundamentally with the late Milton Friedman, the influential US economist and founding father of monetarism. Friedman argued that the “sole purpose of a corporation is to make profit without deception or fraud”. “It seems he was saying that the corporation is apart from society,” King says. “I think nothing is further from the truth. It is absolutely part of society – and it’s a critical part. Look at the collapse of Lehman Brothers: that had a negative impact on two billion people. Microsoft, on the other hand, is having a positive impact on two billion people. Companies have become a critical part of society. We who steer them have to appreciate that. We used to ask how much money a company has made. Today, the critical question concerns how it has made its money and what impact that has had on the economy, society and the environment.” King adds that a company’s total value depends on how its strategy and business model are mitigating negative impacts and enhancing positive ones in all three of these areas. Only by being fully informed can one make a proper assessment about value creation, he says. IR takes off King says that IR’s concepts have gained “huge traction” among companies and investors over the past five years. He refers to a key moment in the mid-1990s when research by standard-setters into plcs listed on some of the world’s biggest markets revealed that about three- quarters of the market cap of these firms was not on balance sheets. “What were investors putting a value on? Some thinking showed that it was based on their assessment of the quality of a company’s governance and whether it had a strategy that could result in value creation that was sustainable for the long term,” he says. Wide acceptance of climate change has also prompted businesses to focus more on environmental considerations. “It was towards the turn of the century that Coca-Cola, for example, realised that water was critical,” he says. “It launched a long-term strategy to reuse, replenish and recycle water.” The IR movement’s progress towards the goal of integrated thinking in firms worldwide has developed over the years. The focus and objectives of the initiative have shifted as its understanding of the challenges facing mankind and view of the purpose of business in society have advanced. But King’s ultimate achievement could well be the saving of the planet from ecological disaster. The process started with a number of conversations with a visionary leader who believed that a dysfunctional system could be transformed into one offering a model of accountability. Mandela made many inspired decisions – choosing King as the leading light of what would become the IR movement was certainly one of those. CIMA’s latest annual report follows IR principles. It can be found at In the same bracket: King with Paul Druckman, CEO of the International Integrated Reporting Council 29Financial Management | October 2015 RETHINKING THE SYSTEM
  25. 25. Financial Management | October 2015 RETHINKING THE SYSTEM MORAL COMPASS Chartered global management accountants have all the tools to guide their businesses through an increasingly volatile and complex commercial landscape, writes CIMA’s chief executive, Charles Tilley FCMA, CGMA 30
  26. 26. NickCunard Financial Management | October 2015 RETHINKING THE SYSTEM ast-developing technology is disrupting our world like never before. In the slums of Mumbai thousands of small manufacturers can now bypass a wholesaler and sell their goods via an app. That spells disaster for the wholesaler but it presents a huge opportunity for these micro-businesses. Such advances are clearly changing how customers behave, too. They want goods and services delivered in different ways, so firms need to be able to meet their changing expectations quickly if they are not to fall behind their rivals. Every business is asking itself: “How do I grab these opportunities?” while at the same time wondering: “Who am I an opportunity for?” To survive in such conditions, businesses have to become more resilient, responsive and effective at making decisions. Resilient organisations are good at anticipating and proactively managing change. They can do this only because they are clear about their objectives and how these create value. They are on constant alert for any development that might limit their ability to achieve these goals. It may seem harder to make sound choices in this context, but this doesn’t have to be difficult if the appropriate methods are used. This means obtaining the right data at the right time to deliver the right analysis. CGMAs are ideal for this navigational role, ensuring that their organisations can arrive safely at their desired objectives. The most effective exponents are also business partners who work with the rest of the organisation to drive change and create value. They extract all the relevant information, explain how the organisation is doing and talk about the connectedness of the business through its KPIs. They are a trusted source of intelligence. Firms in certain sectors – particularly financial services – need to work hard to win back the trust of consumers. Integrity is one of the key strengths of CGMAs. We don’t go looking for information to justify the choices that leaders instinctively want to make; we extract the right data and produce the right analysis to produce the right choices. CIMA is here to help its members be beacons of integrity. Our Global Management Accounting Principles are best-practice standards against which our members can benchmark their activities and identify areas for improvement. We’re confident that our principles are robust and reflect global best practice. We based them on conversations with 300 professionals and a survey of 3,000 organisations. We also held a 90-day consultation, during which we received 400 responses from bodies such as the Financial Reporting Council and the Chinese Ministry of Finance. Moreover, we have published a paper called “The role of the CFO on the modern board”. This focuses not only on financial security but also on effective control, which builds resilience. Joining the dots Four decades ago, the vast majority of a business’s value sat on its balance sheet and so that’s where the accountant’s focus was. Today, that figure is about 16 per cent for the Fortune 500. Consider IT giants such as Amazon, Google and Microsoft: most of their value, their intellectual property, rests in their people. How do you value an employee’s talent on a balance sheet? While the balance sheet is crucial and sets out the cash position, it is missing the huge intangible value that rests in a business. For the profession to remain relevant, it must embrace change that accounts for the business in its entirety, as opposed to the limited elements that exist on the balance sheet. This is where integrated reporting (IR) comes in. International financial reporting standards tell a balance sheet story; IR tells a business story. IR has to happen – there is no other game in town. To tell your story well, outlining how you are creating value today and why it’s reasonable to assume that you’ll create it tomorrow, integrated thinking needs to be applied. This is key to the long-term success of any business. But it isn’t always easy, particularly when different teams operate in silos with their own KPIs. CGMAs have an important part to play in helping a business to adopt an integrated model. They are a single source of truth upon which KPIs and other initiatives can be based. As navigators or business partners – working with marketing, sales, production or the CEO – CGMAs can ensure that effective decisions are made. In a disrupted world where the demand for good decisions is growing all the time, our profession’s contribution cannot be overstated. ‘IFRS tell a balance sheet story; IR tells a business story. IR has to happen’ 31
  27. 27. ‘Islamic economics offers the world sustainable solutions that mitigate against all the other riskier, debt- based artificial instruments’ While the global economy remains so systemically based on debt finance and speculation, another crisis is inevitable at some point, writes Sheikh Bilal Khan. The key ethical concepts of Islamic finance offer a helpful template for thought leaders seeking to end this vicious cycle A growing number of people are questioning the way business is done around the world, considering the ethical alternatives and speaking more about responsible finance. The movement has gained momentum since the global financial crisis of 2007-08, which woke everyone up to the fact that the banking culture known as “casino financing” was rife. Bankers went out and got as many mortgages and debt structures as possible and sold them off balance sheet (OBS). They weren’t looking at the creditworthiness of organisations or individuals. It was inevitable that the toxic use of collateralised debt obligations and derivatives would lead to a crash at some point. Yet the legal and regulatory infrastructure still enables them to work this way. The practices of casino financing have simply gone under the radar in the form of various other OBS transactions. The law favours debt over equity, in that interest payments are tax-deductible as an expense but dividend payments are taxable. This biased treatment encourages more and more debt financing, which can never be healthy for an economy. It’s fundamentally a systemic and structural problem – one that challenges those visionary socioeconomists of the world who genuinely desire positive What the West can learn from Islamic economic principles macroeconomics that infuse ethical values. The time has come when the wider interests of society should be given priority over self-interest, because the latter – in stark contrast to Adam Smith’s theory – has not led naturally to the former. Self-interest can easily conflict with the wider social interest, especially given the human tendency for selfishness. Carroll Quigley, the late historian cited by Bill Clinton as a formative political influence, wrote in Tragedy and Hope (Macmillan, 1966): “The powers of financial capitalism had a far-reaching aim: nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences.” This zero-sum capitalist system has failed miserably and the collective fallout of this monumental failure calls for a radical rethink. We need a system whereby social interest and parity of risk-return sharing give birth to stability and sustainability. This need is bringing together both experienced professionals and aspiring young minds. The initiative is endorsed by governments of countries ranging from the UK to Russia and from South Africa to China. These powerhouses are considering ways to resurrect their economies and they have been enacting Thinking32 Financial Management | October 2015 RETHINKING THE SYSTEM
  28. 28. Sheikh Bilal Khan is co-chairman at Dome Advisory and vice-chairman of the International Leadership Programme panel of Mosaic, an initiative founded by HRH the Prince of Wales to mentor young people in deprived communities. An Islamic finance and takaful lawyer, he is the first sharia scholar to be recognised as a freeman of the City of London and is a member of Catalyst UK, a global network of business ambassadors working with UK Trade & Investment political and legal reforms to this end. They may have conveniently found an ally representing 1.5 billion people – about 23 per cent of the world’s population: Islamic economics presents a discourse that appeals to the full spectrum of mainstream society. Islamic economics offers the world sustainable solutions that mitigate against all the other riskier, debt-based artificial instruments. It views money as a medium of exchange, not as a commodity that can be traded in itself. One of the big problems of the current mainstream banking system is that it enables institutions to sell what they do not own. Common sense will tell you that this will lead to a crash sooner or later. Islamic law stipulates that one does not sell what one does not own. The item being sold in any transaction or financial arrangement must exist and be in the owner’s possession. It came as a pleasant surprise to me when some governments banned practices such as short selling in 2008 at the height of the financial crisis. Short sellers borrow stock from a broker, sell it and wait for its price to drop so that they can purchase that stock at a lower price. Unfortunately, it was only a temporary ban in most cases. Economic stability and sustainability will come about only if there is root-canal treatment to prevent the use of debt as a so-called financial instrument. None of these instruments, institutions and players can be good for the economy and indeed the well-being of society. Islamic economics sets out principles and practices that hold all parties to a transaction to account. There is the concept of stewardship, the requirement for risk and return to be shared and the proscription of any activity that could be harmful to others. It does not argue against making a profit; it simply argues against making a profit that is detrimental to society, whether that’s through profiteering, hoarding or engaging in any other destructive financial measures. Islamic economics questions the role of money as a commodity, the use of debt-based instruments that give rise to interest payments (an unfair distribution of wealth) and all practices involving speculation and uncertainty. Alongside this, it rules out investment in industries such as the arms trade and gambling, to name but a few. Further information about its principles can be found in the popular book by Tarek El Diwany, The Problem With Interest (Kreatoc, 2010). Islamic economics contends that it’s crucial that everyone comes to a transaction looking at the bigger picture, including its long-term impact on society. If you remove the Arabic terminology from all of this, Islamic economics makes sense to those in mainstream society who are interested in ethics and value-based economics, rather than the capitalist view of making money as a goal in itself. The economic revolution will take place only when the legal architecture facilitates the same through measures placing equity and debt on a level playing field, if not tilting things in favour of equity. There must also be a re-evaluation of the policy of money creation by banks. Agents of positive economic change need to muster the confidence to act collectively now – otherwise, history will never forgive them. As Plato said: “We can easily forgive a child who is afraid of the dark. The real tragedy of life is when men are afraid of the light.” The tragedy is too grave for us to be afraid of the light of the positive economic revolution. TrentMcMinn 33Financial Management | October 2015 RETHINKING THE SYSTEM ‘Islamic economics contends that it’s crucial that everyone comes to a transaction looking at the bigger picture’
  29. 29. Lady Judge is the first female chair of the Institute of Directors in its 112-year history. Lawrie Holmes seeks her views on the challenges facing its 34,500-strong membership Leading lady 34
  30. 30. JaneMingay/RexShutterstock B arbara Thomas, Lady Judge, is uniquely well placed to assess the challenges facing the constituents of the organisation she heads. The first female chair of the UK’s Institute of Directors (IoD) has amassed a wealth of board-level experience in many fields, giving her an unrivalled insight into the decision- making concerns of its members, who range from sole traders all the way up to FTSE-100 directors. The New Yorker, who has dual UK/US citizenship, became the youngest person ever to be appointed to the US Securities and Exchange Commission, having made her name as a corporate lawyer. She also broke new ground as the first woman to become an executive director of a London merchant bank (Samuel Montagu & Co). Judge had a short stint as an executive director of News International before accepting a string of non-executive board positions in both the private and public sectors. Having chaired the UK Atomic Energy Authority, she remains chair of the Pension Protection Fund and continues in her role as a business ambassador for UK Trade & Investment. Judge observes that corporate leaders are having to consider the views of more stakeholders than ever before, given that a range of new issues are forcing their way on to the boardroom agenda and a growing number of interest groups are pressing them to explain their approach to these emerging risks. “Two themes stand out for me: the growth in the power of stakeholders and the increasing demands placed on boards for real-time reporting and instant decisions,” she says. “In theory, it’s healthy that so many groups – including NGOs, governments and the general public – are taking an interest in the private sector. Boards must be prepared to respond to them, but there is a balance to be struck in addressing the concerns these groups have while still delivering value for shareholders. Cyber-security should be a priority, for instance, but directors are already facing almost insurmountable pressures on their time. How can we ensure that they give proper attention to all of the issues they are expected to consider?” Judge notes that the quality of corporate governance has been under the microscope ever since the global financial crisis of 2007-08. “Decisions on boardroom appointments, executive pay, takeovers, corporate structure and even capital allocation have become fair game for criticism. There are numerous ways in which businesses can react. These range from bringing outside interests into the boardroom through non-executive appointments to letting employees sit in on remuneration committees. No single response will be right for every company, but there’s a plethora of innovative options at their disposal,” she says. A bigger challenge is the rise of real-time reporting, according to Judge, who has also served as a member of IFAC’s International Ethics Standards Board for Accountants and deputy chair of the UK Financial Reporting Council. “Simplification is almost as important as transparency when it comes to company data. While it is important to know the minutiae and various requirements of long-term incentive plans, for example, the ‘single figure’ remuneration details that British companies are now required to provide are of much more value to outsiders looking at executive pay,” she says. Referring to how boards are responding to these new pressures, Judge says: “When I took up my first non-executive board position in 1994, managers took big decisions by going through a process of careful deliberation featuring lengthy phone calls, strategy meetings and consultations. Sometimes I fear that, as the pressures of real-time reporting grow, executives are being pressed to make more and more decisions in hurried email exchanges without going through the same diligent process. For boards, this means longer meetings and weightier board papers, which may mean that less attention is paid to important details,” she warns. Judge insists that all papers seen by the boards she chairs are kept to a maximum of four pages. “If directors cannot be told what they need in four pages, it means the executive who has written the paper has not given the issue enough thought. The shorter the paper, the more likely it is that important information will be absorbed and retained by busy non-executives.” When it comes to risk management, Judge says that the financial crisis highlighted the need for directors to have a finger on the pulse at all times. “As chairman of the enterprise risk oversight committee at Magna International [a manufacturer of car parts and one of Canada’s biggest companies], I know that more and more of a director’s time is being taken up by the issue, as considerations on risk form a key component of all major board decisions,” she says. The UK corporate governance code’s new requirement on firms to make viability statements will have an impact in this area, according to Judge, who believes that companies will have to look much further than a year ahead and make a judgment about their ongoing health. “This is a significant departure and will demand more attention from boards and auditors,” ‘Directors are already facing almost insurmountable pressures on their time’ ‘Two themes stand out for me: the growth in the power of stakeholders and the increasing demands placed on boards for real-time reporting’ 35Financial Management | October 2015 RETHINKING THE SYSTEM
  31. 31. Reuters,RexFeatures she predicts. “Banks are required to have risk committees and there is wide agreement that boards should have an acute understanding even of external risks and factors beyond their control.” When asked whether she believes that boards are yet diverse enough to comprehend the sheer breadth of challenges facing their organisations, Judge points out that encouraging headway has been made, at least in the UK, in boosting the number of female directors. But she stresses that much work remains to be done in this area. “Although more women may have a seat on the board, depressingly few hold the purse strings. Fewer than 10 per cent of executive directors are female,” she observes. “At the next level down, men are nearly five times more likely to hold a role reporting directly to the board. There is still progress to be made on this front and we must also note that diversity does not stop with gender: most of the men on boards are white, over 50 and university educated. They follow the traditional route through the finance department to CFO and CEO into non-executive roles and chairmanships. As long as someone is asking the probing, difficult and sometimes plainly obvious questions of executives, this system can work. But the easiest and most natural way to ensure that this is happening is to have a mix of experiences, backgrounds and opinions in the boardroom. Three- quarters of the IoD’s members agree that a wide range of views at senior level is a key element of success.” Judge cites an example of the value of diversity from her own experience: “On joining the board at Friends Provident in the mid-1990s, I was the only woman, but I was also an American and the youngest person at the table – the recruitment panel would have been hard pressed to find somebody further outside ‘the club’. In one of my first meetings the senior managers were telling the directors why we should sell the company. When I asked why a 150-year-old firm needed to be sold so urgently, I was told that the insurance industry was consolidating, so we would be wise to ‘pick a dancing partner’ before they were all taken. Quietly, but firmly, I said to the all-male room: ‘Dancing partners are one thing I do know about – you probably won’t have to wait too long for another to come along.’ Then I argued that we should become a buyer, rather than a seller. After a lengthy discussion, the others agreed. We went on an acquisition spree over the next five years and that proved to be a good move. As an outsider, I’d been able to ask the simple questions that the others were overlooking.” Judge points out that 70 per cent of the IoD’s members are from small and medium-sized businesses. While they face a different set of challenges from those of their larger counterparts, “the way they operate is not so different. Small firms and start-ups might not have formal boards, but they do have informal non-executive networks of friends, relatives, business contacts and mentors whom they can call on to help them work through challenges and scope out opportunities.” She adds that skills gaps, regulatory complexity and problems accessing finance are “issues that IoD members grapple with every day. I want to apply my experience at some of the world’s largest – and smallest – companies to help them. Big businesses set the standards for small ones to follow, so I want to ensure that the former have the right priorities. The IoD recently welcomed Google’s decision to create a new holding company, Alphabet, for instance: this shows that tech giants do place an importance on corporate governance and the concerns of investors – a good message to send to the UK’s thriving start-up scene. “Through the IoD’s contacts in government, I will support our efforts to ensure that the UK is one of the best places in the world to do business – whether that is by asking firms to hire more female directors, by developing programmes to address skills gaps or by ensuring that small businesses get paid on time.” LADY JUDGE CBE 1978-80 Partner in US law firm Kaye Scholer. 1980-83 Commissioner on the US Securities and Exchange Commission. 1983-86 Executive director at UK investment bank Samuel Montagu. 1986-90 Senior VP at Bankers Trust Company. 1990-92 MD of US asset manager Cramer Rosenthal McGlynn. 1992-94 Executive director, legal affairs, at News International. 1994-2009 Non-executive director and then deputy chair of life insurance firm Friends Provident. 1996-2000 Chair of the Whitworths food group. 2000-05 Executive chair of Private Equity Investor. ‘Considerations on risk form a key component of all major board decisions’ 2002-10 Director and then chair of the UK Atomic Energy Authority. 2004-07 Deputy chair of the FRC and non- executive director of the UK Department for Constitutional Affairs. 2007- Non-executive director of Magna International, a Canadian car parts supplier, and of Bekaert, a Belgian steel wire manufacturer. 2007-09 Member of IFAC’s International Ethics Standards Board for Accountants. 2007-11 Non-executive director of UK recruiter Robert Walters. 2008-12 Deputy chair of Australian uranium miner Forte Energy. 2010-13 Board member of Statoil. 2010- Chair of the UK Pension Protection Fund. 2011- Chair of the Energy Institute at University College, London, and non-executive director at Liquidnet Holdings, a US- based trading network. 2015- Non-executive director at Lixil, a Japanese building materials group, and chair of the IoD. 37
  33. 33. Financial Management | October 2015 THE VALUE OF INCLUSION Illustration by Drew Tyndell Introducing our section on the value of inclusion, Lawrie Holmes explains why inclusive leadership matters to businesses ‘Integrated reporting is the only form of bringing all the relevant information together’ Download this month’s FM app to see a video presentation illustrating how fartheinclusivity debate has come 39 mart organisations have long woken up to the fact that, if they want to be around in 50 years’ time, inclusivity – and inclusive leadership – is critical. Inclusive leadership is vital to business. For businesses to succeed, they have to harness all the talents of all their people, irrespective of their backgrounds. This enables them to be valued as part of the communities they serve. The articles that follow in this section offer compelling reasons as to why companies with a truly inclusive approach are more likely to cope well with the stream of challenges posed by the “new normal” business environment – and why they are also more likely to capitalise on emerging opportunities. In today’s volatile, uncertain, complex and ambiguous (VUCA) world, the risks and opportunities for value creation are changing radically. A short-term focus on generating returns, based on a narrow view of economic activity, ignores the dynamic context within which businesses must operate. Creating value in the short, medium and long term requires this full understanding, which is why management accounting is critical for a business to succeed. Businesses play a unique and transformative role in creating value and, in so doing, developing and harnessing technologies and new methods that are transforming our lives. The sustainable success of a business hinges on the interdependency of the economy, society and natural environment within which it operates. “In this VUCA world, business success requires more than a focus on delivering short- term financial returns,” says Tony Manwaring, CIMA’s executive director of external affairs. “For businesses to be sustainable in the long term, they create value by linking what they do in the economy as part of the society they belong to and the natural environment. They do this through relationships – people working together across geographies, cultures and borders to co-create value.” The communication of this value is only useful if it is trusted and can be effectively assessed and interpreted to inform decision-making. And best-practice decision-making is championed and underpinned by the power of CIMA’s Global Management Principles, which rely on an inclusive approach and culture. Leaders today need all the relevant information, recognising that the financials tell only part of the story when other areas, such as reputation and relationships, are becoming increasingly important. Thus integrated reporting (IR) becomes essential as a means of explaining an organisation’s value-creation story to its stakeholders. Business works not in isolation but as part of a wider society. Business can’t create value unless it recognises its key relationships. “IR is more than another way of reporting on performance,” Manwaring explains. “It is the only form of bringing all the relevant information together to express and understand full value. It ultimately enables businesses to better understand their value creation.” It’s essential that integrated and inclusive thinking takes place up front. Without an inclusive approach, myopic information will be gathered. It will not include the full depth and breadth required by business leaders to take informed decisions. This in turn will lead to narrow decisions, because the insight needed up front has to be based upon shared understanding and inclusion. Inclusive leadership is an important theme that CIMA is keen to explore. As Simon Langley, National Grid’s UK head of inclusion and diversity, says in “Sustainable people” (page 42), while diversity is about getting the mix of people right, “inclusivity is about getting that mix to work well”. From a management accounting perspective, it’s about getting the mix to understand and unlock the full value of your business model. Ultimately, it’s about co-creating better business and a better society for all concerned.
  34. 34. KieranDodds The financial services industry has faced intense criticism and scrutiny ever since the crisis that shook the global economy to its core in 2007-08. Now that the practices that caused the disaster have been laid bare, the focus has turned to how leadership teams in banks either encouraged, or turned a blind eye to, the culture of groupthink and short-termism that allowed many of these dangerous activities to flourish. But not all leaders in this much-maligned sector are cut from the same cloth, of course. Take Katherine Garrett-Cox, chief executive of fund manager Alliance Trust, for instance. She stands out as a CEO who is making great strides to develop a progressive culture in her organisation. Garrett-Cox is conspicuous in other ways, too: as one of only nine female chief executives in the FTSE 250, she has been in the job for more than Having smashed the glass ceiling in financial services, the CEO of fund manager Alliance Trust is shattering stereotypes about the culture of her industry. Katherine Garrett-Cox tells Lawrie Holmes how diversity helps to prevent groupthink in her firm ‘Women ask some of the best questions’ 40 Financial Management | October 2015 THE VALUE OF INCLUSION