The FRC has blundered into Britain’s boardrooms

...and set out a series of potentially very difficult tests for the directors.

In the aftermath of the banking crisis it was inevitable, and appropriate, that part of the clean up would involve looking at the quality and effectiveness of the auditing and financial reporting of the banks and other associated financial institutions. The fall-out from this process is now starting to hit home with several major reports and consultations reaching a critical stage.

One of these is the investigation carried out by Lord Sharman into the concept of going concern. He was charged by the FRC to investigate whether, in the light of the financial crisis, it was time to reconsider the nature and use of going concern and liquidity risks and any lessons for company directors, investors and auditors and whether they were equally well served by current arrangements.

His inquiry reported back at the end of last year and was broadly welcomed as a sensible piece of work that asked important questions and raised interesting issues for debate. He suggested a number of subtle shifts in the use of going concern, pointing out a need for greater consideration to be given to solvency risk as well as liquidity risk, asking whether more information should be available on the way boards had reached a view on going concern (and especially any assumptions made in the process). But he was equally clear that there was no need to create a special regime for banks and other financial institutions.

In January the FRC revealed how it intended to implement Lord Sharman’s proposals when it released revised guidance on going concern for consultation. The reaction of almost everyone I have spoken to about that guidance has been one of alarm, apart from those who were either shocked or appalled at the prospect. The FRC appears to have adopted the sort of over-implementation more commonly seen when the UK government reacts to a European directive.

Considering the reasoning for his initial investigation, it is alarming to consider that while it’s unlikely much will change in the boardrooms of the UK’s largest financial institutions as a result of the new guidance, the boardrooms of almost every other business are in for something of a shock. Thanks to actions elsewhere in the regulatory universe, banks and financial institutions are already required to pay much closer attention to long-term solvency and liquidity risks and to look further ahead to try and spot and avoid potential future shocks. And for these financial few there is always the backstop of government or central bank support, with bailouts now apparently so normal a part of life that it’s OK for a bank requiring one to be considered a going concern.

Leaving aside the overly optimistic (some might say impetuous) timetable the FRC set for implementation of its guidance, under which the new system is effectively already in play (having kicked in for financial years starting last October, even if they aren’t due to actually report until later this year), there are also doubts being raised about the way the questions for consultation were framed. In January, Scottish Electoral Commissioner John McCormick forced the Scottish National Party to rephrase the wording of the question for the referendum on independence. Apparently voters felt that a question starting “Do you agree…” wasn’t neutral enough. A read of the FRC consultation shows that all but the last of 15 questions is potentially similarly positively loaded.

Doubtless with the best of intentions, the FRC has blundered into Britain’s boardrooms and set out a series of potentially very difficult tests for the directors. Whether directors should be asking themselves these tough questions is one thing, but whether they should be mandated to do so through the corporate governance code (even one built around a comply or explain model) is another. Likewise whether auditors should be thinking again about these issues in greater depth is up for debate, particularly given the wider questions on the future and value of audit. But again whether this is the right time, place or method to introduce such concepts is again questionable.

Above all, these proposals raise a question of who should pay the price for the failures to more accurately predict and deal with the financial crisis. The current FRC guidance seems to suggest that the most effective way to prevent a repeat is to place further complex burdens on those running small and medium-sized businesses and to make it harder than ever for them to access the vital funding and finance from investors. If there is one lesson from the financial crisis and the long, slow and fragile recovery from it is that we should be doing all we can to build confidence across all sectors of the UK economy. The greatest long-term risk to all investors and businesses is not their inherent liquidity or solvency but rather whether there will be a decent and growing market for their goods and services. These proposals will do little to assist that and potentially will be ultimately self-defeating as a result.

The only good news is that however loaded the consultation, the proposed guidance is still just a proposal. There is a public meeting at the FRC next Thursday morning to discuss the pros and cons of the proposals and consultation. Let’s hope that through the force of feedback and constructive discussion we might yet arrive at more sensible implementation of Lord Sharman’s suggestions.

Photograph: Getty Images

Richard Cree is the Editor of Economia.

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The Women's March against Trump matters – but only if we keep fighting

We won’t win the battle for progressive ideas if we don’t battle in the first place.

Arron Banks, UKIP-funder, Brexit cheerleader and Gibraltar-based insurance salesman, took time out from Trump's inauguration to tweet me about my role in tomorrow's Women’s March Conservative values are in the ascendancy worldwide. Thankfully your values are finished. . . good”.

Just what about the idea of women and men marching for human rights causes such ill will? The sense it is somehow cheeky to say we will champion equality whoever is in office in America or around the world. After all, if progressives like me have lost the battle of ideas, what difference does it make whether we are marching, holding meetings or just moaning on the internet?

The only anti-democratic perspective is to argue that when someone has lost the argument they have to stop making one. When political parties lose elections they reflect, they listen, they learn but if they stand for something, they don’t disband. The same is true, now, for the broader context. We should not dismiss the necessity to learn, to listen, to reflect on the rise of Trump – or indeed reflect on the rise of the right in the UK  but reject the idea that we have to take a vow of silence if we want to win power again.

To march is not to ignore the challenges progressives face. It is to start to ask what are we prepared to do about it.

Historically, conservatives have had no such qualms about regrouping and remaining steadfast in the confidence they have something worth saying. In contrast, the left has always been good at absolving itself of the need to renew.

We spend our time seeking the perfect candidates, the perfect policy, the perfect campaign, as a precondition for action. It justifies doing nothing except sitting on the sidelines bemoaning the state of society.

We also seem to think that changing the world should be easier than reality suggests. The backlash we are now seeing against progressive policies was inevitable once we appeared to take these gains for granted and became arrogant and exclusive about the inevitability of our worldview. Our values demand the rebalancing of power, whether economic, social or cultural, and that means challenging those who currently have it. We may believe that a more equal world is one in which more will thrive, but that doesn’t mean those with entrenched privilege will give up their favoured status without a fight or that the public should express perpetual gratitude for our efforts via the ballot box either.  

Amongst the conferences, tweets and general rumblings there seem three schools of thought about what to do next. The first is Marxist  as in Groucho revisionism: to rise again we must water down our principles to accommodate where we believe the centre ground of politics to now be. Tone down our ideals in the hope that by such acquiescence we can eventually win back public support for our brand – if not our purpose. The very essence of a hollow victory.

The second is to stick to our guns and stick our heads in the sand, believing that eventually, when World War Three breaks out, the public will come grovelling back to us. To luxuriate in an unwillingness to see we are losing not just elected offices but the fight for our shared future.

But what if there really was a third way? It's not going to be easy, and it requires more than a hashtag or funny t-shirt. It’s about picking ourselves up, dusting ourselves down and starting to renew our call to arms in a way that makes sense for the modern world.

For the avoidance of doubt, if we march tomorrow and then go home satisfied we have made our point then we may as well not have marched at all. But if we march and continue to organise out of the networks we make, well, then that’s worth a Saturday in the cold. After all, we won’t win the battle of ideas, if we don’t battle.

We do have to change the way we work. We do have to have the courage not to live in our echo chambers alone. To go with respect and humility to debate and discuss the future of our communities and of our country.

And we have to come together to show there is a willingness not to ask a few brave souls to do that on their own. Not just at election times, but every day and in every corner of Britain, no matter how difficult it may feel.

Saturday is one part of that process of finding others willing not just to walk a mile with a placard, but to put in the hard yards to win the argument again for progressive values and vision. Maybe no one will show up. Maybe not many will keep going. But whilst there are folk with faith in each other, and in that alternative future, they’ll find a friend in me ready to work with them and will them on  and then Mr Banks really should be worried.