That’s football isn’t it?

Thierry Henry is a cheat. A fantastic footballer, and for all I know a pleasant and charming individual, but on the evidence of this week’s World Cup qualifying play off second leg match in Paris between France and the Republic of Ireland a cheat.


Football and sport are often used as metaphors for business, mainly in terms of teamwork and people management. However there is also a belief that the spirit in which any game is played is as important as the skill level, and this is another ethos that can be applied to business, as in other walks of life.

There is a way of doing things that is honourable and that does not involve using an unfair advantage to get ahead. You can of course have endless debates as to what is fair or not, but deep down most of us know what is right and what is wrong in business.

Listening to Ronnie Whelan and Alex McLeish two experienced professional football people who were on Sky Sports after the game, both said that while it was clearly heartbreaking for the Irish team, they understood why Henry had done what he’d done, and therefore the Irish had to accept it and move on. “That’s football” seemed to be their message, to which the only possible reply is “Well it damn well shouldn’t be!”

The wonder of a Woolworths administration – part two

Rumblings persist concerning the way that the administration of Woolworths was handled, something that we raised in our blog back in December 2008. Indeed Woolworth’s former management have now added their voices to those who believe that more efforts could have been made by the administrators, Deloittes, to keep the giant store group afloat questioning whether there was a conflict of interest in their provision of advice to the company’s banking syndicate prior to their appointment as administrators. Not surprisingly Deloittes have robustly defended their actions, pointing out that the business simply ran out of money, and that they had been called in with the management’s blessing.


Nobody is pretending that Woolworths was the best run company in the world. However the negative impact of its closure on many high streets up and down the country, and the fact that newly established imitators such as Alworths and Wellworths have seemingly thrived, indicate that the general public placed more value on Woolworths than the financial community apparently did.

With an upsurge in insolvencies expected in 2010, insolvency practitioners will face even more challenges in deciding how terminal the decline of such businesses is, and how far they can go in keeping them alive, whilst not being seen to reward poor management. I wish them all the luck in the world – they are going to need it.

Non-execs – pain without the gain?

One of the biggest questions to emerge from the current banking crisis is what were the non executive directors doing while top banking executives were running their companies into the ground. Indeed this has been a question asked after a number of corporate failures in the past 10 years, such as Enron and Worldcom.


Some of the arguments advanced as to why these non execs were so ineffective in preventing what occurred include lack of accountability, insufficient knowledge of the businesses they were directors of, the fact that they were not selected from a wide enough pool of candidates, and the implication that their high levels of remuneration had compromised their independence.

This view on payment levels was expressed forcefully in last Sunday’s Mail on Sunday. And yet, when one takes into account the risks associated with being a director, the time and effort required to do the job in a way that discharges the legal duties of a director as well as satisfies the requirements of external stakeholders, and the knowledge and experience required to carry out the role properly, the question moves towards not whether non-execs are paid too much but are they actually paid enough to ensure that the right calibre of individual undertakes the role.

That is not to say that independence argument does not have merit, because it clearly does, but surely one of the reasons that a non executive is brought on board is for their ability to think and act independently, something that can obviously be established during the selection process. It is also difficult to establish what level of remuneration is excessive, in that £30,000 for some individuals would be a considerable sum whilst for others it would be pocket money.

We at Orchard have always been big fans of non-execs for all companies, and have had our own from the start. Good non-execs add considerable value bringing experience and knowledge to the party as well as providing a vital sanity check for executive directors and managers, and standing up for the interests of outside shareholders. One of the reasons that we have a strong relationship with the Non Executive Directors Association (NEDA) is the desire to promote good corporate governance through a strong non executive presence on company boards.

We all want knowledgeable, experienced, independent, diverse non executive directors in big and small companies who are willing to stand up to and challenge executive managers where necessary. We also expect these non execs to make available the necessary time to undertake their role, and to take full director risk and responsibilities when carrying out their role. We therefore cannot be surprised when they start to demand remuneration that reflects their skills, their time and the risks that they take.

It's a VAT trap......

I tend to count myself as one of life’s optimists (supporting Spurs tends to do that to you), and I have no doubt that sooner or later we will be out of recession, and enjoying a period of steady, if maybe not exciting, economic growth. The creativity, determination and energy that I have seen over the past twelve months, as business people old and new have faced up to the reality of the economic situation and looked at how to improve their way of doing business, and the goods and services that they provide, has left me convinced of that.

However the accountant in me can never stop looking at potential downsides, so that I can ensure that I have some contingency plans in place to cope. One big lurking downside, along with dealing with the government deficit and the requirement to slash (there is no other word for it) public expenditure, with its consequent impact on unemployment, is the end of the VAT rate cut stimulus that the government put in place at the end of last year.

I fear that this has been forgotten among the various sightings of green shoots and the FTSE index rocketing over the 5,000 mark, but come 1st January 2010 VAT will be back up to 17.5% (or even 20%). Once again systems will need to be changed, wasting valuable time and money, but what will be more interesting is how many businesses will increase their prices as a result. I am sure that most of you will have noticed that since the much trumpeted “point of sale” VAT reductions that major store groups put in place last Christmas, prices have more or less drifted back to their pre-reduction levels. Will there be an increase in prices over and above their pre-VAT cut level, or will firms have to swallow the increase putting even more pressure on profits and cash?

Savvy businesses will have used the VAT reduction to squirrel away some cash (something that I advised clients at the time, believing that this was a better use of the rate reduction rather than adding to the discounts that were already in place for bargain hunting consumers), which they can use to support their businesses in 2010. For other businesses the VAT jump is going to be yet another hurdle for them to overcome. Hopefully it won’t be one too many.

To engage or disengage, that is the question…

Having sat through a thought provoking session on employee engagement last Friday at the IOD West Surrey People Forum, it was somewhat dispiriting to come across a survey in this morning’s paper that, in spite of the fact that their companies have lost on average almost a third of their value, executives at Britain’s top companies earned 10% more than in the previous year. This compares to the overall 3.1% increase that ordinary workers “enjoyed”.

No doubt these executives will use the “L’Oreal” defence (“because I’m worth it”) to justify their largesse, whilst exhorting their employees (those who are left after the most recent round of downsizing) to buckle down and take one for the company, but to use a phrase that has been much used already in respect of politicians and bankers “they still don’t get it do they?”.

Had they been at my people forum last week, they would have heard from Jonathan Scott of em(ic)* about engaged employees i.e. people who enjoy the work they do and “who unlock their discretionary effort to create a winning organisation”, and the potential of such employees to outperform on sales, growth and profit by 2:1, a compelling business case you might think. However the continuing divide between what bosses say and what they do, as evidenced by the pay statistics above, is much more likely to lead to employee disengagement, which one would think was not what is required in the current climate.

Yes top people will earn, and deserve to earn, more based on the skills and responsibilities that go with their jobs, and entrepreneurs in particular deserve to be recompensed for their risk taking. However too many senior executives, both in the private and public sectors, take no risk and little responsibility in their roles, and it is about time their pay packets recognised this. Chances are that their employees already have…..

Trust Me - I'm An Accountant

A number of surveys over the past few years have indicated that accountants remain many business’ most trusted advisors.

This is something that we as finance directors take pride in of course, although it does not make us complacent.However the reaction to the recent survey by the Institute of Chartered Accountants, which suggests that confidence among business professionals has moved into positive territory for the first time in two years, thus indicating that the UK economy may well be showing signs of recovery, seems to have taken this trust to new levels, with the stock market rising to new year on year highs last week.

It seems that politicians, bankers and economists can chunter on as much as they like about future economic prospects, but it is humble beancounters rather than these masters of the universe that are most effective in moving markets.

So does this mean that the recession is over?

Well to misappropriate a well worn phrase, this may not be the beginning of end or even the end of beginning (there are still some nasty macro issues out there, such as the banks willingness and ability to lend, the need to rein in government spending and increase taxes to reduce the ballooning public sector deficit and the lagging indicator that is unemployment), but if there is a chance that some confidence is returning to the economy, it might just provide the encouragement needed by those business owners and managers who have been frustrated by their relative inaction since the start of the year, and who want to start moving things forward again in the last third of the year.

Now that would be an achievement for us beancounters to be proud of.

Credit where credit’s due...

Abbreviated accounts filed ten months after the year end.

"At last! What a horrible year it was, glad that’s out of the way. Well, that is all my accounting done for another year apart from a few other bits and pieces to keep the taxman happy. Still the accountant and bookkeeper take care of all that. Job done, next!”

“What’s that? Our main supplier has cut our credit lines? Why? Because our latest set of accounts as filed at Companies House aren’t very good and are out of date? But that was ages ago! What about those new orders we’ve just won in the teeth of the recession? A couple of them gave us some cash up front and we’ve just banked some large receipts on a profitable old job so we’re quite flush at the moment. However we really need those additional supplies. You want a set of management accounts? What are they when they're at home?”

Genuine quotes from a small business owner? Maybe not yet, but they soon could be. Research by Graydon, the credit management specialists indicates that the lack of publicly available financial information could lead to many SMEs being refused credit by key suppliers. Therefore such businesses may need to have up to date financial information available to share with credit rating agencies. Indeed Graydon have teamed up with Validis to develop their own enhanced credit information service based around validated up to date management accounts.

The increasing number of financial reporting obligations that are likely to be imposed on SMEs don’t end there. Debate is raging within financial reporting circles as to when and how SMEs can be brought into the International Financial Reporting Standards (IFRS) net. Indeed, if the Accounting Standards Board has its way, it could be that our much loved UK GAAP will soon be a feature of history textbooks rather than accounting textbooks, as companies will ultimately be expected to adopt either full IFRS, IFRS for SMEs or the FRSSE for smaller entities.

Funnily enough, during a recent clearout, I came across an old exam paper that posed the question as to whether the future should be “accounting for everyman” i.e. simple and understandable or a highly specialised profession. It seems to have gone in the direction at the latter, with accounts being increasingly detailed and complex and requiring an in depth study by experts in order to fully understand what they are actually saying. This was particularly brought home to me when analysing the accounts of a couple of quoted US companies for a client recently (although ironically the disclosure requirements for unquoted companies in the US would appear to be minimal).

Perhaps another anguished cry can be added to the list of quotes above. “International Accounting Standards? But we don’t do any export business! Help!”