Ethical Lapses Force More CEOs Out of Office

The share of CEOs forced out of office for ethical lapses has been on the rise, according to the 2016 CEO Success study by Strategy&, PwC’s strategy consulting business. The study, which analysed CEO successions at the world’s largest 2,500 public companies over the past 10 years, reports that forced turnovers due to ethical lapses rose from 3.9% of all successions in 2007–2011, to 5.3% in 2012–2016. The 36% increase was due in large part to increased public scrutiny and accountability of executives.

The increase was more dramatic at companies in the US and Canada, where forced turnovers for ethical lapses increased from 1.6% of all successions in 2007–2011 to 3.3% in 2012–2016, or a 102% jump. In Western Europe, the share of CEOs forced out for ethical lapses increased to 5.9% from 4.2%, and in the BRIC countries, to 8.8% from 3.6%.

It is noteworthy that there were 12 women globally appointed to the role of CEO in 2016 – 3.6% of the incoming class. This marks a return of the slow trend toward greater diversity that had been in place over the last several years, and a recovery from the previous year’s low point of 2.8%. The share of incoming female CEOs was highest in the US and Canada, rebounding to 5.7% after falling for the previous three years. Five industries – healthcare, industrials, information technology, consumer staples, and telecom services – did not have a single incoming female CEO in 2016.

Read the full story “More CEOs forced out of office for ethical lapses” at Chartered Accountants Worldwide online. This article was originally published by the Institute of Singapore Chartered Accountants (ISCA) in the June 2017 edition of ISCA Journal. 

Using Good Decision Making to Drive Value

EY - The Future of Decision Making

Making the right decision is hard. Companies have to frame the questions properly, find the right data to support the analysis, and do all this in a way that is transparent and repeatable. In 2012, Ernst & Young LLP (EY) commissioned a survey of 285 senior executives globally from across the consumer products sector. 81% of participants indicated that they needed to improve their decision-making speed and level of insight.

Survey respondents suggested that their people spent too much time making decisions based on intuition, working on mechanical tasks and focusing on unnecessary detail. Instead, they wanted their people to be adding more value through better use of leading indicators, conducting root cause analysis of issues, and linking strategy with resource allocation, planning and reporting.

To improve their performance management capabilities and drive profitable growth, companies need to take a more encompassing approach that not only implements driver analytics, but also uses the analytics to mathematically link business strategies with the market, competitor, operational and financial forces that drive value and, by extension, good decision making. Learn more from the EY guidance, The future of decision making: 5 Insights for Executives.

PwC - Using Data and Analytics to Re-Imagine Forecasting

According to PwC (United States), we are always forecasting - thinking about what will happen, assessing its likelihood, and contemplating the implications. But for CFOs, the stakes are much higher. The cost of being off the mark can be huge, not just in perception but also in dollars. A company’s cost of capital can be impacted by their assumptions and forecasts, and failure to accurately forecast demand fluctuations can result in too much, or not enough, inventory. In each of these situations, the cost of being wrong today can become extremely costly in the future.

This paper talks about the steps and factors a CFO may consider as they re-imagine forecasting in a way that allows themselves and their counterparts in the C-Suite to tease out signals that matter and deliver more value to their organizations in the short and long term. Learn more from the 2016 PwC guidance, Reimagine forecasting: High stakes decision making for CFOs.

PwC - Gut & gigabytes: The art and science of big decisions

The February 2015 PwC booklet called Gut & gigabytes: The art and science of big decisions observes that: “Right now, intuition still prevails, with the majority of corporate decision-makers finding that listening to their gut is preferable to “paralysis by analysis.” More and more, however, executives will be pressed to defend their choices against contrary outcomes that were plainly visible in the data tea leaves. The key isn’t to favor one approach over the other — art versus science — but rather to cultivate and hone the role that instinct plays in our increasingly data-driven world (or, conversely, hone the role that data plays in our intuition-prone decision-making).

The booklet is supported by the 40-page report called Gut & gigabytes: Capitalising on the art & science in decision making. That report was prepared by the Economist Intelligence Unit, sponsored by PwC. It is intended to explore the agenda for big decisions and the process that business leaders will go through in making these decisions.

Big decisions are the most significant decisions about the strategic direction of the business (i.e., not concerned with day-to-day operations). Big data are the recent wave of electronic information produced in greater volume by a growing number of sources (i.e., not just data collected by a particular organisation in the course of normal business). Data analysis is the use of analytical techniques to generate new insights from data.

Executives know the right questions to ask. Now they need to know how to get the right answers from the data (and have the desire to do so). Those who do not should consider learning how. Those who resist doing so will gradually be replaced, as the next generation of data-savvy executives and future senior managers come through. By the time this happens, most executives should be using big data to make strategic decisions – rather than the other way around.

PwC - 10 Minutes on making big decisions

In PwC’s report called 10 Minutes on making big decisions (released in May 2015), it suggests that: “When it comes to making your most important business decisions, there are a plethora of factors to consider. Company leaders often rely on gut instinct to guide them — what we think of as the ‘art’ of strategic decision making. But, what about the ‘science’ side of the equation: data and analytics?"  

Consider that 85% of CEOs maintain that data and analytics creates value for their organizations. But, where and how are they realizing that value? One area ripe for the picking is strategic decision making. According to this report, superior decision making — done with confidence, clarity, and agility — is only possible through a combination of art and science.

"And most businesses have only begun to achieve this delicate balance: While 94% of respondents in PwC's Global Data & Analytics Survey 2014: Big Decisions said that senior management believe they are prepared to make their next big decision, just 38% relied on data

and analytics to do so.”

CIMA, IFAC and PwC combine forces to look at business model reporting

Accountancy Age recently reported that: “The Profession has joined forces in investigating financial reports reflection of the business model and how that can be included into future integrated reporting.” It notes that a background paper Business Model, which reviews business models and how they are represented in financial reports, was prepared for the International Integrated Reporting Council (IIRC) by the Chartered Institute of Management Accountants (CIMA), the International Federation of Accountants (IFAC) and PricewaterhouseCoopers (PwC).

The Executive Summary to the 23-page background paper explores and reconciles divergent approaches in business model reporting with the aim of reaching a common, widely-accepted definition of the business model for use in Integrated Reporting (<IR>). Specific implications for the development of the International <IR> Framework are summarized. A distinction is made between business model disclosures and other information, such as: external factors or context; capitals; governance; strategy and resource allocation; opportunities and risks; performance; and future outlook. These elements are highly interconnected as shown below.

To learn more, read the report Understanding Transformation: Building the Business Case for Integrated Reporting. It tracks the behavioural changes of businesses on their journey towards Integrated Reporting during the first year of the IIRC Pilot Programme. Also, refer to other developments on integrated reporting.

The Role of Professional Judgment in Accounting and Auditing - Deloitte Fireside Chats

The Deloitte Fireside Chats are made possible through a partnership between Deloitte LLP and the SEC Historical Society. On October 22, 2009, an interactive conversation explored the role of professional judgment in accounting and auditing. The session recognizes that the meaning of professional judgment and its application in accounting and auditing have become subjects of interest and discussion for standard setters, preparers, auditing professionals, investors, regulators, faculty and students.

Zoe-Vonna Palmrose, PricewaterhouseCoopers Auditing Professor and Professor of Accounting in the Marshall School of Business at the University of Southern California served as moderator. The two panellists were: Gregory Jonas, serving on the PCAOB Standing Advisory Group and a member of the SEC Advisory Committee on Improvements to Financial Reporting (CiFR); and RobertKueppers, Deputy CEO of Deloitte and a trustee of the SEC Historical Society.

The CiFR identified five concerns that a judgment framework could help. First, many re-statements have resulted from deemed errors in judgment. Second, regulators believed that there are many cases of unpersuasive or under-supported judgments being made by practitioners. Third, companies and auditors believed that, from time to time, regulators did not respect their reasonable judgments and they substituted the regulators’ personal preferences for reasonable judgments in requiring revisions to financial statements when citing audit deficiencies. In other words, there was some mistrust between preparers and auditors and, on the other hand, the regulatory community on the subject of judgment.

The fourth concern was confusion in practice as to what constitutes a persuasive judgment. In the auditing literature and the accounting literature, the profession has never addressed what are the qualities of a persuasive judgment. Fifth, there seems to be a demand for detailed rules as a substitute for professional judgment, which undermines the goal of principles-based standards. There is a defeatist, self re-enforcing bad loop of practice demanding ever more detailed rules, so that they won’t be second guessed by overseers about the quality of their judgments.

The CiFR suggested that a judgment framework could serve four goals. The first was to improve the quality and reliability of the judgments made in practice. The second was to improve an auditor’s confidence that regulators will indeed respect reasonable judgments. The third was to establish criteria for judgments and thereby reduce uncertainty about the characteristics of sound judgment. In other words, clarify what people are looking for from judgment. The fourth goal was to enable principles-based standards.

To learn more, refer to the “Deloitte Fireside Chat – Part I: The Role of Professional Judgment in Accounting and Auditing (October 22, 2009)” available as an Edited Transcript and as an Audio Recording (one hour) on the SEC Historical Society website. Also, refer to the August 2011 postings on SEC Views on a Framework for Professional Judgment – Part 1, Part 2 and Part 3.

The e-professional embracing learning technologies

According to the Association of Chartered Certified Accountants (ACCA), technology is now embedded in the workplace: nearly all numerical and written work is done via computers, and the way research, analysis and assurance is carried out has been transformed by technology and access to the Internet. As more and more activity goes online, finance professionals are keeping up with regulation, filing reports, accessing data and so on, remotely in cyberspace. They are becoming e-professionals.

The ACCA recently issued The eProfessional Embracing Learning Technologies. The report shares the views of a panel of experts from multinational corporations, global professional services firms, learning providers and other professional bodies, on current and future trends in online learning and assessment.

It explores the world of the accountant, focusing on three areas:

·       how online approaches to learning and assessment are affecting professional development at an individual level;

·       the impact these learning technologies are having on employers of finance professionals; and

·       what the future of online learning and assessment may look like.

The conclusion (on page 5 of the report) notes that: “The panellists point to two key reasons for the shift in attitudes and the dramatic rise in uptake of learning technologies during the first decade of the 21st century:

·       First, e-learning provides more sophisticated options for knowledge acquisition and application, largely thanks to the increased capabilities of mobile devices, technologies such as Skype, learning apps and game-based learning.

·       Second, technological developments are driving new learning approaches which are considered to be more flexible and fit for purpose. Learning programmes now fit around work, rather than work being accommodated around study leave.”

Furthermore, it states that: “This sophisticated blend of learning approaches is facilitating a much more strategic approach to professional development. Organisations are integrating learning technologies into their growth plans to ensure that they capture the advantages of flexibility, innovation and sophistication that can be realised through a technology-enabled people strategy. The panellists are in no doubt that the developments we have seen so far are merely the tip of the iceberg, and that further shifts will follow, driven not just by technology, but also by global factors, strategic change and professional endeavour.”

In addition to this report (also available as The eProfessional – Five Minutes On), the ACCA website presents video interviews with PwC’s global development leader - Richard Pollard, CEO of BPP Business Schools - Martin Taylor and managing director of Towards Maturity - Laura Overton.

Professional Judgment - Education Continued

A recent article in CAmagazine states "Professional development isn’t what it used to be. Like the information it imparts, continuing education for CAs — and the type of knowledge that’s in demand — is changing." The article quotes from Jeffrey Gandz, a professor and managing director of program design for the executive development division of the Richard Ivey School of Business at the University of Western Ontario in London, Ontario.


Gandz notes that: "On the one side is upgrading of knowledge and skills via shorter, more compressed, efficient delivery systems. On the other, there is a growing focus on developing judgment and much more recognition that context and effective developmental experiences are critical."

Beyond talent management, increasingly professional development is focused on what goes into decision-making. "We spend a lot of time talking about operational, reputational and quantitative risk and the impact of rapid change and turbulent environments on the kinds of business decisions being made in our executive programs," says Gandz. "The time from 2008 to today has seen a lot of uncertainty, so we talk much more about strategic options rather than strategies cast in stone. Certainly there is more humility about being right and greater focus on making good decisions but recognizing that circumstances vary greatly." In other words, he says, judgment is used.

PricewaterhouseCoopers (PwC) is using a structured, team-based approach to learning on the job. "It’s a way to capture teachable moments as they arise and in the process help accelerate the development of our junior people and reinforce learning on the job," says Kate Hand, learning and development director for national assurance practice at PwC Canada. "Rather than stop and have someone attend a seminar or e-learn session, we now have a structure and specific techniques we can use when an opportunity arises. So we’ve addressed the learning gap and provided feedback and support. As a result, our junior team members have more opportunities to take on more rewarding work. As well, it improves communication across the team because you are coming together to address issues in a real-time, real-life, relevant way."

For example, this fall PwC launched a program dealing with professional skepticism that blends a formal learning component with the team-based learning approach. "How do you teach judgment? By sharing war stories of near misses," says Hand. "Our senior team members have these stories but they might not always think to share them with junior team members. Now, they can come together to talk about what professional skepticism means for the client, how to address it and assess it and what to do when something is unusual. Junior team members might not otherwise have the confidence to question a client."

(The article "Education CONTINUED" on pages 24-31 in the December 2011 CAmagazine is also available online.)