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.
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
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