Monthly Archives: March 2011

Less, not more, red tape

The amount of non-financial information in annual reports has grown substantially in the past ten years with questions being raised regarding the reliability of the information that companies include at the front of these reports. More recently, there have been calls to expand the information provided with further reporting on Corporate Social Responsibility (CSR), Sustainability and the risks faced by the business.

The benefits of increased communication of non-financial information are well-publicised with perhaps the most important being it satisfies user’s demand for more information about the non-financial performance of companies and their future prospects.

This increased demand for reliable information could see the financial auditor’s role expand to give greater assurance on the narrative content of annual reports, including assessing CSR reporting and whether the statements made reflect the policies and procedures adopted in practice by the entity.

All things being equal, increasing the responsibilities of the auditor to assess the reliability of these narrative disclosures will inevitably result in an increase in the cost of an audit. Moving into new non-financial areas will require the use of specialists in these fields and additional training for existing personnel. There is also a significant issue around the sharing of risk between the auditor and external specialists. Then there’s the classic bugbear of such changes adding another level of regulation at a time when businesses want less, not more, red tape.

Despite these challenges, we think it is important to flag reporting on non-financial information as a difficult, but increasingly important, area that requires more clarity around the auditor’s role. RSM International provided feedback to the European Commission regarding the non-financial reporting in its submission on the EC Green Paper: Audit Policy – Lessons from the Crisis and will continue to actively participate in this debate as it develops.

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Filed under Audit Proposals, EU, Technical News

Corporate Responsibility Steps Aside

The term ‘corporate sustainability’ is increasingly uttered in the business world, and is gradually taking over from ‘corporate responsibility’ – and ‘corporate social responsibility’ (CSR) before it – as the dominant paradigm of international corporate conduct.  In the wake of the global financial crisis, it is evident that increasing numbers of business leaders around the world are implementing corporate sustainability programmes. Defined, rather inhumanly, as the integration of economic, environmental, and social factors in enterprise decision-making, corporate sustainability is not just a tag-on, but an integral shift in how businesses are run. 

So how can we explain the increasing prevalence of corporate sustainability in the international business community? For one, growing regulatory pressures around the world are forcing investments in environmental protection and consumer safety. Rising commodity prices are also playing their part – making it more important to conserve resources. But perhaps the main driver is that businesses and corporate conduct are – rightly in my view – facing increasing public scrutiny, altering the way they report, and ultimately shifting the level of attention they pay to individual business ‘priorities’. In an uncertain world, they need to show strength and resilience, economically, environmentally, and socially. 

Adoption of corporate sustainability varies depending on company size, industry, geography and ownership structure. Adoption rates are unsurprisingly highest in industries that are heavily regulated and highly brand-sensitive. Right now, European companies are more ‘corporately sustainable’ than American companies, probably because of the stronger regulatory and stakeholder pressures in the European Union. In other regions, corporate sustainability programmes are expanding s (e.g. Africa, Middle East, Asia-Pacific, Latin America), reflecting the growing commitment of governmental agencies and non-governmental organisations to sustainable development. A number of multinational corporations headquartered in emerging markets such as Mexico, South Korea and Taiwan, now rank among the global leaders in sustainability. The growing sensitivity of shareholders to sustainability issues means implementation is greater among public than private companies, and although corporate sustainability take-up is quickening among SMEs, large, resource-rich companies are the more aggressive adopters. 

RSM’s Talking Points article on the topic points out that evidence to date suggests the implementation of corporate sustainability programmes positively correlates with financial performance. This shows us its value as a vehicle not only to instill (and be seen to be instilling) corporate responsibility, but moreover, if corporate sustainability is integrated into the ethos of a company, it can boost competitiveness and stimulate profitable growth. 

For a fuller analysis of corporate sustainability, see the following link to RSM Talking Points.

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Filed under Effective business, General, Management, Talking Points

Fairtrade – Making a Difference

Last week I spoke to you all about the European Business Awards – an independent awards programme that celebrates the successes of businesses and leaders throughout Europe. During the awards ceremony held in Paris, I was particularly moved by the story of the company who won The Award for Corporate Sustainability, The Fairtrade Foundation. Interested in learning more about their history and vision, I met yesterday with Frances Robathan, Fairtrade’s Head of Fundraising, and was inspired by her enthusiasm and the Fairtrade story.

Established in 1992, The Fairtrade Foundation is an independent non-profit organisation that licenses the use of the FAIRTRADE mark on products in the UK in accordance with internationally agreed Fairtrade standards. Their vision is of a world in which justice and sustainable development are at the heart of trade structures and practices so that everyone, through their work, can maintain a decent and dignified livelihood and develop their full potential. This vision certainly resonates with me.   

As Johann Wolfgang von Goethe said “He who moves not forward, goes backward.” The environment and the world are changing and it is up to business leaders to look inward at their policies and practices and begin implementing environmentally sustainable business models. How do we do this?  It is about asking the right questions, being aware of what is available on the market and associating ourselves with the right products and companies. It is about, where possible, getting employees and clients involved and committed to doing business in a more socially responsible way.   

Whether it’s printing double-sided to conserve paper, setting up recycling bins or making a commitment, as the RSM Executive Office has done, to purchasing Fairtrade products whenever possible, what is important is that we start taking steps – no matter how small – towards improvement and changing not only our practices, but also our mindset.

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Filed under Entrepreneurs, European Business Awards, Great Ideas, Management

Celebrating Entrepreneurship

In tough economic times, entrepreneurship and innovation are more important than ever as companies and businesses continue to battle in an ever-crowded market place. An entrepreneurial spirit can make the difference between win and lose as the competition toughens. However, entrepreneurship does not come as standard and those who do it well should be recognised for their achievements. This year, we are celebrating entrepreneurship through our sponsorship of the European Business Award’s (EBA) Entrepreneur of the Year award. The EBA is an independent Awards programme designed to recognise and promote excellence, best practice and innovation in the European business community.

At RSM International, our member firms work with many young, dynamic and growing businesses and sponsoring these awards is our way of showing support for the entrepreneurs who push their businesses through adversity to succeed.

Speaking of best practice and innovation, Duncan Goose (a previous recipient of the RSM International Entrepreneur of the Year Award) comes to mind. His story is an interesting and inspiring one. Duncan quit his lucrative job in advertising to set up the not-for-profit organisation Global Ethics, with the aim to raise funds for projects in developing countries. His company launched ‘One Water’, a brand of ethical bottled water whose profits go to providing water solutions in Africa. This also demonstrates how success comes in many forms and entrepreneurship is not just about growth and impressive balance sheets, but also about having a visionary approach and the leadership and management skills to turn these visions into reality. There is no doubt hard work also has a large part to play in this inspiring story.

In 2010 the Awards engaged with over 15,000 companies and included entries from a very diverse group of businesses across all economies in Europe.

The European Business Awards 2011 are currently open for entries.

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Filed under Entrepreneurs, European Business Awards

Unrest in the Middle East and North Africa

The wave of recent events culminating in geopolitical unrest across parts of North Africa and the Middle East is having wide-ranging repercussions on these varied and complex societies. It has also led to the emergence of that great enemy of the business community – uncertainty. We have already seen short term erratic stock markets, currency movements and fluctuating oil prices. Company business plans however must look to the medium and longer term and this will prove perhaps the greatest challenge for us all.

RSM International has significant representation in the region with member firms or correspondents operating in several Middle East and North African countries including Afghanistan, Bahrain, Egypt, Jordan, Iran, Kuwait, Lebanon, Oman, Saudi Arabia, UAE and Yemen. I have been speaking with our member firms in these countries recently and whilst not all markets are impacted in the same way, there are certainly common threads.

New foreign investment and capital expenditure programmes are at higher risk now across most of the region. Questions around oil are adding to uncertainty around the world. With North Africa and the Middle East together responsible for a large proportion of the world’s oil production, any disruption in either or both areas will have a significant knock-on impact on global economies, some still fragile as they emerge from the banking and debt crisis.

Within the region, Egypt of course is a major economy and following the political upheaval, many projects in the country are currently on hold. In particular, we can see the challenges facing the banking system and the Egyptian stock exchange, at the time of writing, is still closed. However, the picture is not all gloomy. In the UAE, Kuwait and Saudi Arabia our member firms report that businesses are operating as normal. The business situation in Bahrain and Oman is also relatively stable at the moment. 

The common denominator across the region is the need for growth and jobs, especially to tackle the challenges of youth unemployment. Sound, sustainable growth is what all countries need in order to address the wider societal challenges they face  – and those of us involved in facilitating international business development will remain absolutely key regardless of how the various political changes eventually emerge.

Finally, times like these highlight the importance of good contingency planning and having a robust risk management strategy in place. In this ever-changing world, so many things can disrupt business, such as the unexpected political unrest we have seen recently, the impact of natural disasters such as volcanic ash fall out, or man-made causes such as cyber attacks.  As members of the business community, we must do our best to anticipate these scenarios and manage their impact for the good of national and regional business stability.

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Filed under Middle East and North Africa