Stephen Haddrill and his vision for the FRC

Stephen Haddrill

In 2003, the scars of Enron and WorldCom were painfully fresh. Accountants were under the spotlight and within government there was talk of creating a ‘super-regulator’ under the auspices of the largely toothless Financial Reporting Council (FRC).

Stephen Haddrill was one of a team of three tasked with remodelling the FRC from within its parent, the then-Department of Trade and Industry. But it wasn’t until last November, when he left his post as head of the Association of British Insurers to become FRC’s chief executive, that Haddrill actually worked for the regulator – and what a time to join.

On 1 December, the FRC released its first major public policy initiative under Haddrill, which touted the possibility of a ‘Stewardship Code’ aimed at vesting institutional shareholders with a commitment to the long-term prosperity of their investments. The FRC has volunteered to administer the Code.

“The FRC has a very close and continual engagement with the audit and accounting profession and rightly so. But the ultimate beneficiary of the work of the FRC is the investment community,” he says. “While our contact with the investment community has grown, that’s an area to intensify.” That’s a departure from his predecessor Paul Boyle’s approach, who focused on promoting best practice in the accounting profession.

This change in direction has raised speculation that under Haddrill, the heat the FRC put on the Big Four under Boyle’s leadership might be turned down.

Haddrill wants more engagement from the FRC with government, in the UK and Europe, so that it is involved in discussions around standard-setting and regulation at the earliest stages. That’s something in which he is seasoned: At the ABI, he once described his dealings with Whitehall as “like banging your head against a pillow”.

“We need to talk more to the sovereign wealth funds, overseas investors and the US banks and encourage them to take a stronger interest in the companies they either own themselves or they own on behalf of their customers,” he says.

Engaging Europe
He aims to raise the UK’s lobbying power in Europe by increasing the FRC’s numbers in Brussels, taking a more aggressive stance in policy formation and fostering more support from politicians.

“Sometimes public authorities in Britain come too late to the game – we only engage with Brussels when we are frightened,” he says. “We must not be afraid of Europe or step back. We must be engaged with it.”

In 2009, Westminster was largely silent on international regulation and accounting debates, while France successfully lobbied on seemingly technical issues that threatened to change the global economic order. In October 2008, it led a revolt against the International Accounting Standards Board (IASB) which broke all its rules to change its controversial fair-value standard.

Haddrill believes the UK has to shout just as loud. “A number of the more technical issues will require more input,” he says. “We have to engage in some of those questions because the Brussels machine is starting to move on them.”

Haddrill is also not afraid of voicing an opinion on moves to harmonise US and international accounting standards. The IASB and the Financial Accounting Standards Board are painstakingly trying to fuse the US’s 30,000-page accounting code with the 3,000-page book used by most countries. The IASB believes this convergence effort is the best path towards eventual US adoption of international accounting standards: Haddrill disagrees.

“We have to work together around the goal of producing good quality standards. It’s not just about translating American standards into an international shape,” he says.

In another departure from his predecessor’s priorities, Haddrill does not intend to dedicate efforts to fostering the emergence of a fifth big auditor to rival the Big Four. He prefers to focus on preparing for the possibility of a B ig Four collapse, rather than trying to open up competition.

“I don’t think an increase in competition is going to be achievable in the near term. The priority for us has to be preparation for the worst,” he reveals.”

The FRC is also under threat from the suggestion that, if the Conservative party wins the 2010 general election, it may carve up the UK’s regulatory framework, abolish the Financial Services Authority (FSA) and hand banking supervision back to the Bank of England – creating a new consumer protection agency and fusing the remaining FSA functions with the FRC.

That would represent a radical departure from Haddrill’s original FRC vision. There are already fears within the profession that Haddrill, under a Tory model, will be lumbered with responsibilities not suited to the FRC.

“The Conservatives have put forward their ideas in a very tentative way and our understanding is that they are not going to take any decisions about that before the election,” says Haddrill. We shall see.

This is an abridged version of an article published in Accountancy Age in December 2009