Off Balance: Tesco's case of the 'invisible' CFO

The invisible businessman

29 Jul 2014 | Richard Crump

OFF BALANCE was recently hob-nobbing with a finance bod who described the ‘invisible' job of the CFO post-acquisition. The FD was talking about all the nuts and bolts integration work that often goes unnoticed once the glory of the deal has faded.

Tesco, it seems, have taken a more literal approach. According to a report by Reuters, Britain's biggest retailer has had to remove a photo from its corporate website of newly-appointed FD Alan Stewart after rival Marks & Spencer complained he was still technically their employee. Now that's rubbing salt in the wound.

According to the report, Tesco had earlier shown a head and shoulder pic of Stewart, who it described as ‘chief financial officer'. The pic has since disappeared and Stewart is now described as ‘incoming CFO'.

Both M&S and Tesco declined to comment, but it brings a whole new meaning to the CFO's lot as an invisible board member.

Off Balance: FRC loves Mark 'Amour' Armour. Fact


17 Jul 2014 | Off Balance

THE BEAUTY of publishing online is that you don't have to check your copy as thoroughly - you can always edit at your leisure...which means wait until someone spots Off Balance's mistake(s).

So when a typo was flagged up in the Financial Reporting Council's latest annual report by some lovely people in the Twittersphere, OB had to investigate.

It appears that former Reed Elsevier CFO Mark Armour, who sits on the FRC's board, had his name misspelled. OB is now left to wonder whether the missing ‘r' from Mark Armour's name, leaving him with a lounge singer-esque moniker ‘Mark Amour', was actually a Freudian slip made by a besotted FRC staffer.

In fact, OB is not going to dwell on that thought for too long. And anyway, the fun has been spoiled now that the typo has been corrected. But OB will never forget Mark Amour...

Fifa must red-card its old-fashioned governance structure


11 Jul 2014 | Roger Barker, Institute of Directors

"FOOTBALL has nothing to do with fair play. It is bound up with hatred, jealousy, boastfulness, disregard of all rules and sadistic pleasure in witnessing violence: in other words it is war minus the shooting."

We can perhaps forgive George Orwell for his caustic view of the beautiful game: it was 1941 and Europe was in the grip of a deep and (as it turned out) lasting conflict. But his words came to mind when I began to consider the situation the sport's international governing body finds itself in more than 70 years later.

The youth of the world has once again locked horns - but this time in a glorious festival of sport. The Fifa World Cup has proved a wonderful global spectacle featuring drama, excitement and goals aplenty. The skill and commitment of players on the field has been gripping and the emergence of fresh new talent has been uplifting.

What is going on off the field, however, is rather less edifying (although sadly no less public), and underlines an urgent need to profoundly revamp Fifa.

Off the pitch issues

As most people will no doubt be aware, The Sunday Times has made serious allegations relating to the award of the 2022 World Cup to Qatar which have struck to the heart of the organisation. The Economist joined in the chorus of disapproval stating "the case for stripping Qatar of the 2022 World Cup seems unassailable".

Whether or not you agree, it is imperative that Fifa understands the unease and unrest the affair has created and responds positively to its critics. To my mind, there is no better time for the Fifa board to reflect on the accusations and then use them as a catalyst for change. Top of my list, if I was advising them, would be to transform their governance from frankly "worst in class" to "state of the art".

Since its creation in 1904, Fifa has grown from a small group of volunteers into a global organisation. However, unlike most multinational enterprises, its governance has not evolved in a way that reflects the massive complexity and global prominence of its activities.

In the past, Fifa has resisted reform on the basis that it needs a governance structure that is more inclusive and democratic than a typical corporation. However, as we have seen, the reality is that Fifa's current governance arrangements have proved unable to deliver effective leadership, accountability, transparency, clean business practices and public confidence.

Fifa is an organisation whose decision-making processes are routinely alleged to be corrupt or improperly influenced. During the last four years, four members of its Executive Committee have been forced out on the basis of suspicions of bribery. For such a large and important global organisation, such negative perceptions are unsustainable.

The final report by Fifa's Independent Governance Committee (Chaired by professor Mark Pieth) was published in April 2014. It makes a number of recommendations for governance reform which have yet to be adopted. As a minimum, these should be implemented as a matter of urgency.

What to change?

The most important of these recommendations is that independent members should be added to the Fifa Executive Committee (in addition to those appointed by the regional confederations and Fifa Congress).

In my view, this recommendation does not go far enough. Fifa's Executive Committee should be transformed into a modern board of directors containing a significant number of independent board members directly elected by the Fifa Congress. Instead of a president (the role currently occupied by Sepp Blatter), there should be a separate chairman and CEO. Such a board would be more capable of promoting the success of the organisation in a professional and objective manner, and would be selected on the basis of merit and expertise. It would also be properly accountable in its pursuit of FIFA's mission and objectives.

In addition, Professor Pieth is right to argue for a fundamental review of Fifa's key processes and policies, including those relating to World Cup hosting decisions, the governance of development projects, campaigns for the Fifa presidency and marketing/procurement activities. Independent directors should play a key role in the oversight of all of these key processes.

Fifa is currently cushioned by the large amounts of money flowing into world football. It can also seek refuge behind its unaccountable and dysfunctional governance structure. However, by embracing rather than rejecting fundamental reform, Fifa has the opportunity to become a beacon of best practice in global sports governance rather than an increasingly derided pariah.

If Fifa is not prepared to take the necessary steps itself, pressure should be exerted by the main corporate sponsors (Adidas, Coca-Cola, Emirates, Hyundai, Sony and Visa) and their shareholders. The Swiss regulatory authorities (in whose jurisdiction Fifa is incorporated as a not-for-profit organisation) should also consider the regulatory tools at their disposal.

Last but not least, the regional football confederations and the Fifa Congress should reflect on the damage to their own reputations if they continue to support a discredited framework for the governance of global football.

It would be a worthy finale to a fabulous summer of sport.

Roger Barker is director of corporate governance and professional standards at the Institute of Directors

Off Balance: MySale shares on sale after '£' confusion

Entrepreneur Sir Philip Green

17 Jun 2014 | Off Balance

THE FAT FINGER OF DOOM has hit the financial markets, in particular prodding itself in a place that Sir Philip Green would find ‘arkward', Off Balance has noticed.

No, he didn't take an analyst's finger to the hooter, instead the FFoD led to an errant description of the 226p shares of his IPOing Australian fashion website MySale as £2.26. Yes, Off Balance knows that the two figures are effectively the same thing, but financial whizz-kids couldn't get their big brains around it - thinking that trading had actually begun at 2.26p.

Was it the fault of Macquarie, MySale's Nomad? That's the suggestion.

"For clarification, the placing price was 226 pence versus the quoted GBP price today of £2.26," MySale said in a statement to the London Stock Exchange. "MySale Group plc's trading currency is currently in GBP, as opposed to British pence as intended."

So there you go, all cleared up then...hmm...

Off Balance: Slow news day for Captain Obvious

Captain Obvious

05 Jun 2014 | Off Balance

OFF BALANCE, in search of pointless press releases and numerical non-entities to present the Captain Obvious Award, has come up with a cracker.

Apparently most drivers are against a blanket 20mph speed limit on urban roads, according to ‘research' by the Institute of Advanced Motorists.

More than half (55%) of young drivers were against 20 mph zones...that few?

That most of us can only hope to get up to such dizzy speeds as 20mph in town has not been broached by the IAM. Have a Captain Obvious Award, on us.

A Postcard From...Qatar: More than the 2022 World Cup


21 May 2014 | Kim Hayward, BDO

THERE IS more to Qatar than the 2022 World Cup, but it's impact is evident everywhere by the massive infrastructure projects underway.

Doha is an interesting city, in a country of just two million people and blessed with the phenomenal wealth thrown off from the second-largest gas reserves in the world. As Dubai has the intention of becoming the Middle East's financial services hub, so Doha wishes to fulfil this role for natural resources.

Qatar is the world's wealthiest country as measured by GDP per capita of greater than $110,000. A country able to throw $100bn of infrastructure ahead of the 2022 World Cup can probably afford to do just about anything, but nine brand new football stadia?

In my three days there I experienced a lavish new downtown, stunning new buildings, an airport only 20 minutes away (I missed the opening of a new one by only one month!). Being a dry state, most meals and alcohol are consumed in what are quite sterile hotel restaurants. There are many Arab gentlemen in their dishdasha robes but few Muslim women are seen. It was hot, very hot, at over 40 degrees most days; far too hot for football.

UKTI shows Qatar as a growing market for UK companies, exports have doubled recently with bilateral trade exceeding £7bn. Qatar was a British protectorate until 1971 at which point it was granted independence, so English is very widely spoken.

There are many opportunities for UK businesses. In terms of construction, even after a decade of substantial investment, there is still more needed and luxury retail will continue to flourish with such a high rate of disposable income. The question is, will it become a holiday and investment destination for the world's high net worths, I'm not sure.

The natural resources sector and gas, in particular, will surely deliver many supply chain opportunities. On my flight out I sat next to an Australian healthcare consultant who explained how significant an area of investment this was for the Qatar government.

But is doing business there easy? Visas for short visits can easily be obtained but make sure you leave time to arrange them. Work permits for extended stays have to be secured through local sponsors and at a cost. With the need for migrant workers and to entice foreign business into Qatar, work permits are becoming easier to secure. Foreign expatriates can own property in Qatar and the value of real estate is rising fast. The Pearl of the Gulf development, where I stayed, has been built offering 7,500 dwellings. As well as the Australian on the plane, I met with a young executive from a south east Asian airline setting up in Doha, and they both commented that getting things done can come down to who you know and an improper or misconstrued comment in the wrong company can bring the shutters down.

There are little things to be mindful off too; the airline executive commented on a member of staff spending a night in the police cells because he was spotted by passing police kissing his girlfriend at an ATM. Cross-gender contact is just not done in public, but you will see the Arab gentlemen in deep embraces.

Foreign direct investment is encouraged by the Qatar government through their Investment Promotion Department at the Ministry of Business & Trade. Other than a minor rule by which a company has to maintain reserves up to 50% of its share capital, companies can remit profits earned and there are no foreign exchange restrictions. The government encourages JVs and can offer incentives to do so, including very cheap energy, no customs or import duties on plant and equipment, no export duties and importantly, no corporation taxes on profits for negotiated periods.

The "Law of the Land" is ostensibly Sharia (Islamic) law, but the legal system is evolving and companies are governed by the Commercial Companies Law. Tax is quite easy; income tax is levied on partnerships and companies whether domestic or foreign owned and the general tax rate is 10%. Petroleum related operations are taxed at 35%. There are no personal taxes, social security costs or other deductions from payrolls.

I used to work in Milton Keynes; back then it was new, unfinished and soulless. So is Doha. It will undoubtedly thrive, but will it ever be a fun place to be?

Kim Hayward is a partner at BDO

Squaring the circle for mutual benefit


13 May 2014 | Roger Barker, Institute of Directors

IT HAS NOT been a great few months for the Co-op board, let's be honest.

The hitherto bastion of corporate citizenship and standard-bearer for the mutual movement, reported record £2.5bn losses, details of which followed hot on the heels of the departure of Paul Flowers.

So how has this long-standing vanguard of co-operative principles ended up pretty much on its knees, and can its co-operative values and principles still be practiced within a hard-nosed, commercial framework which some members clearly wish to fight shy of?

Lord Myners' review into governance at the group clearly identifies a number of failings by the board.

The board is accused of hiding behind a façade of control while severe weaknesses in its structure created weak governance and strategic misjudgements. It singularly failed to scrutinise management decisions as good governance demands.

Fundamentally, the group's 20 directors - something of a full payload - proved too inexperienced and lacked the skills to promote the company's financial success.

There was, for example, the "value-destructive" takeover of Somerfield and Brittania, which entirely absorbed the board's attention leaving far too little time to devote to overseeing management performance.

Regrettably, none of this came to light earlier because no one, either externally or internally, held the board to account. Co-op's members were hamstrung where shareholders would have been able to speak out.

What is clearly now needed is a professional board to run the organisation without compromising the Co-op's values and principles. And as Lord Myners has shown, the two are, or can be compatible if not entirely sympathetic bedfellows.

His vision is that of a much smaller board with an independent chair and both executive and non-executive directors. Crucially, all the directors would be recruited primarily on the basis of having the relevant skills and qualifications needed to run the Group, but they would also need to demonstrate they held views consistent with the values of the co-operative movement.

Above the board would be a council representing member's views, which would also set the vision, mission and values of the organisation. The members' council would, at last, have significant authority and be able to appoint/annually re-elect the members of the board in accordance with the above.

This has the look and feel of a robust, sustainable response. One that should inject much-needed professionalism into the boardroom while also including checks and balances to ensure greater accountability.

Simply put, the fact that Co-op is run as a mutual should not in any way impact on boardroom efficacy, nor should it imply that directors are any less skilled than those within shareholder-owned organisations.

Peter Craddock, an independent consultant who holds a part-time role at the FCA and is also an IoD chartered director, believes that the debate about ownership here is "a bit of a red herring".

He has worked within a number of different ownership structures, including a mutual and a plc. He observes: "Mutuals are required to achieve the same high standards of corporate governance as PLCs or private equity-owned businesses.

"The most important issue for any board is the quality of the individuals that are appointed to sit round the table, and who between them have the right mix of skills, experience and know-how to deliver great results. It's that blend of talent that determines whether any board is a good forum for decision-making.

"Members should have access to directors, just as shareholders have, through the AGM and regular communication, as well as via a members' council."

For validation of these sentiments you only have to look to Nationwide which recently reported a massive hike in first-half profits of 162%, which, it claims, vindicates its mutual model.

So, the idea that the venerated mutual should be consigned to the annals of history as no longer relevant seems more than slightly wide of the mark. Look at the growth in ethical businesses, from internet start-ups to that stalwart John Lewis. There seems little reason why the idea of shared ownership within a professionally-run organisation, backed by values and principles, shouldn't have its place both on the High Street and the information superhighway.

Dr Roger Barker is director of corporate governance and professional standards at the Institute of Directors

Off Balance: Captain Obvious & the File-Sharers

Captain Obvious

28 Apr 2014 | Off Balance

IF THERE's ever going to be an easy candidate for the Captain Obvious badge of statistical obviousness and inanity, then software companies are rich pickings.

So it's with a heavy heart that this month's Captain Obvious is awarded to Varonis.

But when you send off a press release about a survey that says "97% of organisations currently relying on public cloud-based file-sharing accounts would be interested in an online file-sharing service that stores some or all data on premises", then, quite frankly, you're asking for trouble.

The fact that Varonis just happens to be a cloud-based file-sharing services provider can almost go without mentioning. Enjoy your Captain Obvious label this month.

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