Judy Terry is a marketing professional and a former local councillor in Suffolk.
The Financial Reporting Council (FRC) watchdog is reportedly going to “crackdown” on boards in the wake of major recent accounting scandals at a number of big-name companies, by introducing new regulations to hold directors to account.
The public sector also needs to answer questions.
At Suffolk County Council, for example, a respected and successful specialist committee monitors investments in shares for employees’ pensions, reviewing performance and auditors’ reports in some depth. The same procedures will apply to other pension providers, as well as independent investors; trusting the information provided is crucial to protect ‘ordinary’ people’s retirement.
It may be naïve, but it is surely a question of transparency – if the City is to recover international respect, still in short supply following the 2008 crash and the significant recent business failures. Financial Services are vital to continuing confidence in the UK’s economy and growth after Brexit.
Whilst the FRC fined auditors £32m in 2018-19, company bosses have largely escaped detailed scrutiny and accountability; Finance Directors and Chief Executives, especially, are required to get a grip. The same must be true of Non-Executive directors, whose role is to be the eyes and ears of investors, challenging information and recommendations; they should question awarding excessive salaries and undeserved multi-million pound bonuses, adding to shareholders’ resentment as profits dive and borrowings rise.
The FRC should also assess how non-executives are recruited and lay down some rules when the process appears to be rather incestuous, with some individuals sitting on a number of different boards – often without any experience of a particular business – for which they receive substantial payments. Given the commitment demanded of such positions, it is hardly surprising if they cannot devote sufficient time to the paperwork, enabling them to challenge, and evaluate the nuances in auditors’ reports.
Rules should extend to the public sector, with councils increasingly setting up subsidiaries using taxpayers’ money to acquire commercial property, including out of town retail centres instead of boosting the High Street, without full and effective public scrutiny and independent accountability. With Council Tax continuing to rise, these companies should be required to provide detailed Annual Reports, setting out long-term investment strategies alongside income/expenditure, identifying directors and any payments they receive.
Meanwhile, last year, the National Audit Office (NAO) criticised the Ministry of Housing, Communities & Local Government, which funds the 38 Local Enterprise Partnerships for “making no effort to evaluate the value for money of nearly £12 billion in public funding, nor does it have plans to do so”.
With LEPs responsible for Growth Hubs, which support small and medium sized businesses, there is evidently a need for greater transparency. It recently emerged that Manchester’s Business Growth Hub, owned by the Growth Company, made provisions for ‘financial irregularities’ of £325,000 in 2015 and £136,000 the following year, and an employee was dismissed for allegedly falsifying evidence. LEPs recruit local business leaders to their boards, so this is a warning to ensure tighter scrutiny of both applications for funding and their management.
Sadly, it took a decade for lessons to be learnt at the state-owned Post Office – if, indeed, they have been learnt.
Post Offices are at the heart of communities, as important as pubs, libraries, and neighbourhood shops, yet the network was ravaged by scandal from 2000, following the installation of a new computer system. Software failings subsequently led to financial shortfalls with accusations of theft and false accounting resulting in bankruptcies, prosecutions, and even jail sentences, for some of the 550 former Sub-Postmasters, whose lives and reputations were destroyed, despite their attempts to raise the alarm by reporting discrepancies on their tills.
Rather than accept responsibility when the failings were eventually exposed, highly paid Post Office executives and directors spent £23m of taxpayers’ money on legal fees when Sub-Postmasters sought redress for their treatment through the courts.
At the end of last year, after a three-year court battle, they finally won £58 million in compensation, with the Judge criticising Post Office denials that its IT system had been plagued with bugs. Victims are rightly calling for a public inquiry and for those who led their persecution to be held to account. Regrettably, that is unlikely to happen. The former Chief Executive, who recently stood down after seven years, continues to enjoy non-executive positions in both the private and public sector, including in the Cabinet Office and chairing an NHS Trust, funded by the taxpayer.
Tighter regulation should also apply to public sector appointments, as well as charities. The collapse of the Kid’s Company, largely funded by Government, in 2015, has disappeared off the radar; has anyone been held to account? No. Another example of corporate mismanagement rewarded, at the cost of ‘ordinary’ people.
Fiscal illiteracy appears to be a prerequisite for director-level positions in too many flagship organisations – and amongst those commissioning projects. HS2 and the Garden Bridge are just two examples of what happens daily across the country.
It’s more a question of who you know, rather than what you know. Directors walk away with millions, but the thousands of people who lose their jobs as the result of their bosses’ incompetence, deserve better.