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									Opinion > President’s column

                                        leading the
                                        A focus on our strategic plan should help
                                        the Institute achieve our vision of Leading
        Andrew Arkell                   the Profession in 2008.

I t is my privilege and pleasure to serve
  the members of the Institute of
Chartered Accountants as your President
                                                recognised and differentiated Chartered
                                                Accountants brand
                                                > growth to ensure a sustainable future
                                                                                                   When speaking to new members I normally
                                                                                                   make the comment that a profession
                                                                                                   is very much like the 100-year-old axe.
for 2008. I am fortunate to chair a board       for the Institute and individual Chartered         You can replace the handle or axe head
comprising outstanding Chartered                Accountants – in particular addressing             as many times as you like but in the end
Accountants who are passionate about            the skills shortage and ensuring ongoing           you still have a single axe. Chartered
our Institute. The Board represents all         recruitment and retention of members               Accountants come and go but the
segments of the Institute, is geographically    > global positioning – in particular through       profession remains. However, the quality
diverse and gender balanced. I am also          the Global Accounting Alliance, thinking           and standing of the profession is only as
looking forward to working with our CEO         globally and acting locally                        good as the current group of members.
Graham Meyer and his team who are               > ensuring the Institute is fit for the future –   Each new generation of members inherits
always striving to provide the highest          in particular strategic thinking which             the standing and reputation of the previous
quality service to members.                     identifies and responds to emerging                generation. The challenge for us, the
   The role of President has two distinct       trends and issues                                  current group of members, the Institute’s
parts. The first is to chair the Board of the   > people and culture – in particular               staff and management that supports the
Institute. In October 2007 the Board            developing a corporate culture within the          members, is to:
and senior management undertook a               Institute that is proactive, responsive and        > enhance the confidence that society has
                                                                                                   in the profession
                                                                                                   > undertake life-long learning in an
Chartered Accountants come and go but                                                              increasingly complex world
                                                                                                   > act ethically in an increasingly grey world
the profession remains. However, the                                                               > contribute to deserving community
quality and standing of the profession is only                                                     services without thought of fee or reward
                                                                                                   > remain independently minded with high
as good as the current group of members.                                                           levels of conviction.
                                                                                                      Training as a Chartered Accountant
                                                                                                   does not guarantee a successful career.
strategic planning process with input           innovative with strong leadership.                 But I am convinced that it gives you a
from the various Regional Councils                 I am confident that the interests of the        significant head start!
and senior management representatives.          Institute’s Board, management and the                 I would also like to take this opportunity
The purpose of this process was to              many members who volunteer their time to           to thank Rob DiMonte, President in 2007
develop a Strategic Plan for 2008               sit on councils and committees are aligned         for his determination and dedication
to 2010. The strategic planning process         to undertake the above mentioned strategic         during that year. He showed on numerous
concluded that the Institute should             issues so as to achieve our strategic              occasions his passion for our Institute
focus on the following six strategic            objectives over the next three years.              and drove a lot of issues during 2007. His
issues if we want to achieve our vision                                                            strategic focus was needed on more than
of Leading the Profession:                      MEETING MEMBERS                                    one occasion to identify and focus on the
> relevance to members and stakeholders         The second part of the President’s role            important issues. I hope to continue his
– in particular a differentiated segmentation   is to meet with members at both formal             legacy of delivering on key initiatives and
strategy which delivers value to members        ceremonial functions and other social              I look forward to meeting the challenges in
throughout their career life cycle              events. I enjoy all of these opportunities to      2008 and working tirelessly to further the
> leadership and competitive positioning        meet with members, in particular the new           interests of our Institute and the profession
of the Institute – in particular, a well        member certificate presentation events.            in Australia.

 14 Charter | February 2008
Opinion > CEO’s view

                                         The Institute has embraced Facebook in a bid
                                         to connect more directly with all Chartered
       Graham Meyer                      Accountants and in particular Gen Y.

E     veryone’s talking about it. What’s your
      firm doing about it? Because if you’re not
doing anything, you can bet a colleague is.
                                                     The group provides information on
                                                   Chartered Accounting, ranging from earning
                                                   potential to the breadth of industries you
                                                                                                    philanthropic in attitude and committed to
                                                                                                    improving our environment and the way
                                                                                                    we live. During the selection process, the
   I’m talking about Facebook (facebook.           can work in. ‘Number 1 in Numbers’ is            organisations’ names were left unknown
com), the social networking site that              managed by our careers marketing team            but they were all in the following categories:
boasts two million Australian users and to         who answer career queries from students          environmental, welfare and social justice.
which companies are joining in droves for          and inform them about the Chartered                 To coincide with the beginning of the
its marketing, networking and recruiting           Accountants Program.                             new university year, later this month we will
opportunities.                                       Facebook offers the ability to tap into the    announce the three nominated causes and
   The Institute has embraced Facebook by          ready-made community who want to talk,           present the challenge. The challenge will
creating a group ‘Number 1 in Numbers’             learn and engage and because of this the         involve students working and collaborating
and also with an Australian first – an             group continues to grow.                         together to solve a real business problem
Australian business courses application                                                             for the organisation.
– for courses at Australian universities so        THE APPLICATION                                     The challenge offers students the
students can engage with the Institute and         The key advantage of Facebook over               opportunity to use their university studies
each other. The group encourages users to          other social networking websites is the          in accounting and apply their knowledge
interact, ask questions and be interested in       ability to build complete applications           – just as they would in a real life business
accounting as a career.                            that members can use. The Australian             context. It also offers an opportunity to
   All the Big 4 have created global               business courses application has been            use the collaboration capabilities the
employee groups on Facebook that not only          designed by digital agency Holler and            application provides.
represent the company but also encourage           allows members to network and collaborate           The challenge will take place over a
employee interaction nationally and globally.      on their course work.                            number of months and more information
For the first time in Australia, we saw the           The application covers all business           can be found at charteredaccountants.
leaders of the two key political parties, Kevin    related modules in Australian universities
Rudd and John Howard, use Facebook and             and allows students to join a group for their
other social networking sites in last year’s       course. It is similar to the calendar function   MEMBER GROWTH
election with the dual purpose of being a          in Microsoft Outlook and as part of a group,     The overwhelming recurring topic in 2007
political platform and a channel to engage         students can find classmates, compare            was the skills shortage. It is a challenge that
with constituents, especially young voters.        schedules, create private study groups and       numerous research reports named as a key
   Facebook is also gaining prominence             manage their personal and work lives.            priority for the profession, including our CFO
with recruiters, not only as a way to source                                                        of the Future report and is also reiterated
potential candidates, but also as a tool to run    THE CHALLENGE                                    verbally in conversations with members.
additional background checks by logging            Our involvement with Facebook continues             The skills shortage shows no sign of
onto the candidate’s Facebook profile.             with accounting, business and finance            going away in 2008. The Facebook initiative
                                                   students. At the end of last year, students      will help our incessant drive to engage
THE GROUP                                          were invited to consider the mission             with students and attract more young and
We see Facebook as another avenue to               statements of Australia’s leading non-           intelligent people into Chartered Accounting.
inform young people about the accounting           government organisations and nominate the           Facebook is an opportunity for you too
profession and the benefits of Chartered           cause they would like to engage with and         to engage with students by sharing your
Accounting. I invite you to not only be my         contribute to most.                              experience and knowledge with them. I look
friend, a term used in Facebook for those you        The organisations that have been selected      forward to your Facebook entries and helping
choose to engage with, but also to become          are those that appeal to Generation Y.           us grow our network which will ultimately
part of our ‘Number 1 in Numbers’ group.           This age group are considered to be              help grow our membership base.

 16 Charter | February 2008
Business > On the economy

                                           Working out the unknown unknowns
                                           of the global economy in 2008 may
         Adrian Thirsk                     well prove an exotic exercise.

E     xotic. I like the word. I like its sound and
      its semantic suggestions verging on the
intoxicating. Those of you returning to the
                                                     concluded that a more challenging period
                                                     lies ahead. The “known known” of domestic
                                                     inflationary pressures will create tensions as
                                                                                                        consequently taken upward price pressures
                                                                                                        into the red zone.
                                                                                                           Another year-end function, at which I was
workplace after vacationing in foreign lands         Australia’s economic stewards negotiate the        a guest, was one of the Australian Industry
might agree that some entire languages can           negative impacts imparted by the “known            Group’s prouder moments. In hosting the first
be exotic. For me, French is a fine parfum           unknowns” of a slowing US economy and              major address to business and industry of
striking an alluring note on a Georges               the global credit market crunch.                   the new Treasurer, Wayne Swan, they were
Haussmann boulevard. The hot pulsing                    Australia confronts the challenges from         also able to assemble on their top table the
Portuguese of Rio de Janeiro is a carnal             a position of strength, now that it’s well         governor of the Reserve Bank, Glenn Stevens,
cavalcade that floats like Mardi gras.               into its 17th year of continuous economic          and the head of Treasury, Ken Henry.
   Accents of English, too, have particular          growth. At the end of last year, I attended a
auditory impact. It has long fascinated me           forecasting conference staged by the group,        ELEVATED INFLATION
that the accent from the home of capitalism          Australian Business Economists. For the            As the top bureaucrats watched on,
is so highly effective at selling itself. The        occasion, ABE had distilled the predictions        the politician’s address placed heavy
American accent demands to be listened               of its executive committee. The consensus          emphasis on the single “known known” of
to. It asserts a right to be heard. And for the      was for the local economy to move into             inflation. “I warn you we face an extended
unsuspecting listener it can turn the fatuous        an unprecedented 18th and 19th year of             period of elevated inflation. Inflationary
into the profound. But - without wanting to          expansion. The committee expected GDP              pressures have been building for a long time
undermine my own postulate – consider                growth to reach 3.8 per cent in 2008 and           and they will take a long time to turn around
this example of the reverse. At a Defence
Department briefing in February 2002, the
US Secretary of Defence, Donald Rumsfeld,            How the sub-prime mortgage crisis plays
revived the wisdom that “there are known
knowns. There are things we know that we
                                                     out will be the key to US prospects.
know. There are known unknowns. That is
to say there are things that we now know             3.5 per cent in 2009. It wrote that “while         as well,” said Swan. Indeed, he divulged
we don’t know. But there are also unknown            these forecasts represent a modest slowing         Treasury’s view that there’d be further
unknowns. There are things we do not know            from a very strong 4.3 per cent growth             pressure on the underlying inflation rate over
we don’t know”.                                      rate in 2007, no single forecaster sees the        the following 18 months.
   No matter how many times I replay it              Australian economy growing below 3.2 per              A perhaps welcome part of the problem is
on YouTube™, the mirth quotient remains              cent over the next two years”.                     that the global demand – led by China and
extreme. Yet there is a simple profundity               Mark Rodrigues, a senior economist at           India – for minerals and energy has boosted
to the words that spans disciplines. This            ANZ, has gone so far as to describe it as          national income. Swan noted the impact
headland statement could equally be                  the bullet-proof economy. His end-of-year          of the terms of trade. “Australia’s terms of
employed by Australia’s legion economists            synopsis was that “Australia’s economy             trade – the price of our exports relative to
who, as the new business year gets under             shows few signs of buckling under the              imports – are higher than at any time since
way in earnest, are busy polishing their             weight of ructions on global financial             the Korean War wool boom in the early
prognostications for 2008.                           markets, a deteriorating economic outlook          1950s.” And Swan referred to Reserve Bank
                                                     in the US, rising petrol prices and rising         estimates that four years of improving terms
MORE CHALLENGING                                     interest rates”. It is clear, however, that such   of trade had lifted real national income by
Boiled down to an essence, I would suggest           strength is also the economy’s Achilles            about $80 billion in the last year alone. That
that the combined economic wisdom                    heel. The level of activity has pumped             income has been fuelling domestic demand
operating in Australia’s financial markets has       up demand, stretched resources and                 via high employment levels (and therefore

 18 Charter | February 2008
wages) and business investment.
Now, a bigger (and better skilled)
workforce and the expansion
of productive capacity in the
economy through investment
are both potential triggers for
inflation and the cure for it. So, to
my mind, the key performance
indicator this year - for federal and
state governments and the central
bank alike - will be the extent to
which the productive side of the
economy can still be encouraged
and/or allowed to grow without
further unleashing inflation.
   For the Reserve Bank, this task
will be made all the more difficult
by a key continuing “known
unknown”. The US sub-prime
mortgage crisis and the wider
contagion across global credit markets                       rates, with the minutes confirming that           economy had remained strong, with exports
were described to me by National Australia                   “absent the changes in market yields since        in particular now rising strongly, assisted by
Bank’s chief economist, Alan Oster, as                       the November meeting, there would have            the depreciation of the US dollar.”
the most critical issue for the 12 months                    been a strong case on domestic grounds
ahead. But he believes the spike in the                      for a rise in the cash rate at this meeting”.     US SLOWDOWN
cost of funding between banks is likely to                      At the time of writing, the NAB and            The question still being asked, however,
be temporary. “We would hope that by                         ANZ just had raised their standard variable       is whether the American economy will
the middle of (the) year a lot of this sort of               home loan rate beyond the cash rate               slide into recession. Oster predicts
uncertainty will have gone away. If it hasn’t                increase delivered in November. That,             quarterly US GDP growth rates of between
then I think basically that is quite negative                together with whether, or by how much,            0.2 and 0.4 per cent for the next three
for global growth.”                                          the other banks follow, will probably be the      quarters. “Given the volatility in the data,
   The most recently published views of                      determining factor for the central bank’s         the statistician could well and truly find
the Reserve Bank on the credit market                        monetary policy decision at this month’s          a negative number there,” says Oster.
problems are found in the minutes from                       first board meeting of the year. “The             In response, Oster sees the US Federal
its December monetary policy meeting.                        question to be addressed at that time             Reserve lowering its federal funds rate
It observes that the extent of pressure in                   would be whether the interest rates faced         to 3.5 per cent by the middle of the year.
                                                                       by borrowers as a result of the         The Reserve Bank has noted the range
AUSTRALIAN GROWTH OUTLOOk                                              combination of policy action and        of views about the seriousness of the
                                                                       market developments would               slowdown in the US economy. Its own
                                                                       exert sufficient restraint to contain   take is that the housing downturn must
                                                                       inflation over the medium term.”        feed back into employment and incomes
                                                                          Forward-looking policy setting       and, consequently, consumer spending.
                                                                       is always conducted with a careful      But so far it thinks the US labour market
                                                                       eye to international economic           has remained reasonably firm. “Initial
                                                                       conditions. This year, I suspect        jobless claims, a high-frequency and timely
                                                                       particularly fine judgement will        indicator, had not at this stage shown
                                                                       be required in respect of the           any sign of the sharp rise that had been
                                                                       American economy. How the sub-          associated with recessions in the past,” the
                                                                       prime mortgage crisis plays out         central banks says.
                                                                       will be the key to US prospects.           So a US recession and its potential
 Source: Coast-to-Coast - Westpac Enconomics December 2007             At the time of writing, the most        impact on the Chinese, Indian and global
                                                                       recent Federal Reserve statement        economies remain “known unknowns”
the Australian money market has been less                    acknowledged that “economic growth is             in foreign lands. And the “unknown
than apparent elsewhere around the globe.                    slowing, reflecting the intensification of the    unknowns”? In my journey through
“(Local) lenders had largely confined the                    housing correction and some softening in          economic journalism, I’ve also heard them
pass-through of these increased costs to                     business and consumer spending. Moreover,         referred to as ‘X’ factors. But what will they
business borrowers, though household                         strains in financial markets have increased”.     be in 2008? Well, let’s just say that that’s
borrowers could, in time, face some                          Australia’s own Reserve Bank observed             where economics becomes eXotic.
additional increase as well.” But the higher                 that the American economy had exhibited
cost of funds to business was enough to                      a degree of resilience. “The latest data          Adrian Thirsk is a financial reporter
stay the hand of the RBA on official interest                showed that non-housing parts of the US           with ABC Radio.

                                                                                                                                          19 Charter | February 2008
Opinion > Enterprise

                                         the value of
                                         having values
                                         Family businesses values can lead
     Sue Prestney FCA                    to more ethical business behaviour.

A      s the majority of private businesses are
       family businesses, I am always interested
in new family business research and,
                                                   affects other stakeholders as well.
                                                   For example, unified families are more
                                                   likely to share their values with employees,
                                                                                                       businesses embrace?
                                                                                                          A review of the values of families in
                                                                                                       business that I have worked with shows that
because family businesses tend to exhibit          with 85 per cent reporting that the family          popular values include trust, integrity, respect,
common characteristics around the world,           shared values with employees to a large or          passion, loyalty and honesty. No surprises
international studies are always interesting,      even a great extent. The study concludes            there and not greatly different from the stated
especially when they focus on issues that          that “the overlap between individual and            values of many non-family businesses.
have not been widely canvassed here.               organisational values may result in increased          However, a maxim such as “all dealings
   The 2007 American Family Business               levels of employee loyalty, commitment              of the business have to be honourable, legal
Survey is a good example. This study               and organisational citizenship behaviours”.         and moral” is more likely to be vigorously
covers many of the same areas as our own           They also found that 85 per cent of                 promoted when the family’s own standing in
surveys but also looks at issues relating to       respondents share similar values with               the community would be damaged if it failed
ethical behaviour and social responsibility of     their customers and comment that “such              to be observed.
family businesses.                                 synchronised values between families in                Security and stability are also common
   It found that 91 per cent of the American       business and their customers may improve            family business values; one family
family businesses surveyed believed the            relations and foster economic stability.”           established a rule that if the business made
family’s values are emphasised in the                 I have no doubt that this also occurs here.      losses for two consecutive years it would
business. In fact, the authors conclude that       Family business owners I know like to do            be closed, rather than further deplete the
family orientation translates into more ethical    business with other family businesses with          assets of the business.
business behaviour. About 37 per cent of           similar values. And family business owners             Humility is another popular family value,
family businesses surveyed actually had a          are usually very certain about their values.        sometimes combined with respect and
written code of ethical behaviour and 60 per       When I ask family members to list the top           compassion and defined as being respectful
cent believed their ethical standards were         five values of their family, they are almost        of and compassionate to others, grateful
more stringent than their competitors.             always clear and consistent, which is not           for the opportunities available and sensitive
   The survey quotes a 2006 study of S&P           surprising – after all they have usually grown      to the needs of other stakeholders. Most
500 firms by Dyer and Whetten which                up in the same environment.                         people would be glad to work for business
found that family firms exhibit more social           The values of the family are often               owners with this philosophy.
responsibility than non-family firms. Dyer and     automatically impressed onto the business              While I’m not saying that family
Whetten relate such behaviour to the families’     by family members who interact with                 businesses are always more moral or ethical,
concern about image and community                  employees, suppliers and customers. This            I think it is true that their values are generally
reputation. It stands to reason that, if the       is an organic instillation of values and culture    more likely to permeate the business and be
business carries your name, or is otherwise        from people who live them rather than an            shared with employees. People like to deal
intrinsically identified with you, you will care   idealised statement of values elicited from a       and work with businesses whose values
as much for the reputation of the business as      selection of employees, often representing          they share with the result that good values
you would for your personal reputation.            the values they think the business should           can breed successful businesses. The
                                                   have rather than those that really exist. This is   advantage that family businesses generally
FAMILY UNITY                                       why family business values tend to be more          have is that, because their values are
It is no accident that 87 per cent of the          pervasive and entrenched and they remain            imbued in and emanate from the family, they
respondents say family members share               as long as the family continues to display          are more likely to be genuine.
values, which is interpreted as meaning            them in their interaction with the business.
there is agreement on values, attitudes                                                                Sue Prestney FCA is from MGI BOYD
and beliefs among family members of the            POPULAR VALUES                                      Chartered Accountants & Taxation Advisors
business ownership group. Family unity             So what values do our family                        and is the Institute’s spokesperson on SMEs.

 46 Charter | February 2008
Opinion > Financial services

                                          of interest
                                          Institutional ownership of financial planners
                                          leads to conflicts of interest, but selling them
  Robert MC Brown FCA                     doesn’t guarantee independence.

H     ardly a day goes by without comment in
      the trade and general media about the
so-called remuneration debate in the financial
                                                    part of institutions to influence the flow
                                                    of funds under management towards the
                                                    owner’s products and that in that context
                                                                                                     is product-based remuneration models
                                                                                                     (commissions, fees or bonuses) that are
                                                                                                     the real culprits. Any deflection from that
planning industry. Not bad for an issue             remuneration models are irrelevant. Few          point misses the reason why the financial
that has been pronounced dead by many               would argue with the point that institutions     planning industry continues to struggle for
members of the industry commentariat.               buy interests in dealer groups to gain control   professional recognition.
   Their argument is that the industry is           or influence over product distribution;
evolving towards professional recognition           however, whether this is the fundamental         CONFLICTS OF INTEREST
through a combination of improved                   issue is arguable.                               Another deflecting tactic that is used to
education and the strict application of rules          Where the financial planners who are          derail the remuneration debate is to argue
concerning disclosure and transparency.             licensed by institutionally owned dealer         that the form of remuneration doesn’t matter
They suggest that these actions                     groups are remunerated by commissions            and that all will be well so long as everything
satisfactorily address conflicts of interest,       or product-based fee-for-service models          is disclosed and transparent. After all, it is
ensuring that the day will arrive when              (typically a percentage of funds under           argued, “the client is in charge and must
financial planners will take their rightful place   management), the potential for influence         be given a choice about their adviser’s
in the community of occupations that bear           – and even control – over the flow of money      remuneration”. Hence, the suggestion “we’ve
the professional title.                             is obvious. However, if those same financial     moved on, the remuneration debate is dead”.
   The fact that the pesky debate on                planners were to be remunerated by                  This argument is based on the faulty
remuneration keeps returning is not just            genuine non-product-based remuneration           assumption that in the provision of financial
an unhappy coincidence and it’s not the             models, the potential for influence or           advice, one form of remuneration should not
result of a conspiracy inspired by people           control is substantially diminished or           be preferred over another. Clearly, product-
referred to recently in an industry journal         removed altogether.                              based remuneration models give rise to
as carping commentators (such as this                  Of course, most financial planners            fundamental conflicts of interest, and non-
writer!). The inconvenient reality is that          in Australia are part of an institutionally      product specific models do not. Therefore,
the debate keeps returning because its              owned dealer group, to some extent or            the suggestion that “all models are equal”
resolution is central to the acceptance of          another. Any suggestion that they are            is plainly wrong. Regrettably, the bulk of
financial planners as trustworthy advisers.         influenced by their dealer group’s ultimate      the financial planning industry continues to
Most people in the industry know it,                owner is often met with indignant cries of       defend this indefensible assumption.
but the potential for disturbance of the            denial. Nevertheless, the fact remains that         No amount of adviser education,
commercially comfortable status quo is              the shareholder institutions harbour an          regulation, compliance rules, professional
perceived to be so great that some people           expectation of funds flow and in many cases      standards, enforceable undertakings
don’t wish to face reality.                         their expectations are met. In the immortal      and gaol terms will make the industry
                                                    words of one institutional senior executive,     professional. Those things will help but
DEFLECTING TACTIC                                   “we designed the remuneration model              ultimately they are not the solution to the
One deflecting tactic that is often used            in the dealer group to achieve a certain         problem. The solution lies in the adoption
to derail the debate is to suggest that the         behavioural outcome and it works”.               of non-product-based remuneration
fundamental issue is not remuneration                  The point here is that it is not the          models. One day the industry will accept
models; rather it is the lack of independence       ownership of dealer groups that is the           that truth and promote it; or it may be
of dealer groups caused by their ownership          fundamental cause of irreconcilable              imposed upon it (an outcome that doesn’t
by financial institutions. Needless to say, not     conflicts of interest; it is the remuneration    bear thinking about).
all dealer groups agree with this analysis!         structures within them. This is not to say
   Nevertheless, it is suggested that such          that ownership of dealer groups doesn’t          Robert M.C. Brown FCA is a financial
ownership is inspired by a desire on the            matter. Of course it does. However, it           planning specialist.

 48 Charter | February 2008

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