30 years of FD: The shape of things to come

IN the 30 years since Financial Director was first published, the finance profession has undoubtedly undergone some tectonic changes that have shaped and moulded the CFO role into a very different job than it was back in 1984.

Who back then could have predicted the birth of the internet, let alone the explosion in cloud computing and the latest wheeze – big data – that is currently altering the way finance functions apply analytics to forecasting, budgeting and driving corporate strategy?

At the same time, the role has become more commercial and less focused on ‘just the numbers’. Finance functions increasingly strive to operate as true business partners. Here, Financial Director looks at how the profession, and the world in which it operates, will change over the next 15 years.

The finance function

• 99% of the most senior finance chiefs will be ‘CFOs’, with finance director titles reserved for divisional and regional roles

• Corporate rivals will jointly own shared service centres and more openly spread best practice

• Research departments will build up and be incorporated within the finance function

The Americanism ‘CFO’ will continue to spread, to the point where few finance chiefs will be called ‘finance director’. But the urge for the finance function to have more responsibility for data and its analysis will see huge research departments formed. These will collate data pored over by finance function analysts. This evolution in CFOs’ responsibilities might even afford another job title change: perhaps the CIO title will not represent strategic IT directors and instead the CFO will become the true chief information officer.

There is currently a move for businesses to outsource non-core functions. And while the finance function has been at the heart of this, a desire to keep information close at hand will see corporates rebuild finance functions with information at the heart. To keep costs down, they’ll do this alongside other businesses, sharing some information and best practice with rivals within their ecosystem.

Qualifications and careers

• The average age of a FTSE 100 FD will be 39

• One in ten FTSE 350 FDs will have trained at either Grant Thornton or BDO

• The ICAEW will finally achieve its merger ambitions – but with CIPFA and ICAS

The increasingly fast pace of business will see budding FDs learn the ropes quicker and quicker, and make those able to adapt sought after for the top finance roles. The current average age of a FTSE 100 FD is 50.1, a number that has stubbornly remained the same since 1998 – yet the pace of change will continue to accelerate and reaching 39 by 2029 will mean plenty of chopping and changing at the top.

As Grant Thornton and BDO make forays into the audit market, while serving growing businesses in emerging sectors, more of their accountants will naturally find their way into FD positions. This will help accelerate the view at board level that the two firms are viable alternatives to the Big Four for both audit and non-audit services.

As for the institutes, well, do we really need so many? ICAS may be small and perfectly formed, but its size and reputation make it an attractive partner to the ICAEW. Increasing corporatism in the public sector sees the ‘English institute’ and CIPFA finally join forces. It will also go beyond memoranda of understanding with far-flung accounting institutes, and look to merge with ICAS as well.

Audit

• One of the Big Four audit firms ditches the service line

• Simple audits will be fully automated

• Non-Big Four firms will hold 15% share of FTSE 350 market

The list of banned non-audit services and non-audit fee caps will become so onerous that the weakest of the Big Four audit firms will ditch the service line altogether and become a consultancy more akin to Towers Watson than a global accounting firm.

As the weakest of the Big Four exits the market, challenger firms such as Grant Thornton and BDO take the opportunity to snap up market share in the FTSE 350 audit market. Having spent 15 years convincing the UK’s biggest firms of their worth through non-audit work, they finally break into the top tier of lucrative audits.

At the lower end of the market, audit will have become largely automated through the use of cloud software allowing auditors to vet accounts in real time, on the move and in any location.

Financial reporting & corporate governance

• Annual General Meetings will be held online only

• Financial notes to the accounts will no longer exist in physical form

• The US finally adopts IFRS

Berkshire Hathaway’s well-attended ‘rock concert’ of an AGM dwindles in popularity. By this time other companies have moved their AGMs entirely online because of their poor attendance levels. Investors are now able to watch the AGMs unfold through a web cast where they can pose questions and vote on resolutions online.

Financial notes to the annual account, too, will have been moved entirely online. Integrated and narrative reporting has long become established as the norm and regulatory attempts to cut clutter finally succeeds in annual reports reducing in length. Financial notes no longer accompany the accounts and are available for investors and analysts to download from the corporate website.

After years of dithering, prevarication and objections, the US finally adopts IFRS and ditches US GAAP. Decades after the IASB and FASB agreed to work together towards a set of globally converged accounting standards – attempts which largely failed – Japan, China and India have all converged to IFRS, leaving the US as one of the last bastions of GAAP. The US allows voluntary adoption of IFRS, finally ending with full adoption.

Economics

• Birmingham becomes the fastest-growing economic region in the UK just three years after HS2 opens.

• The UK economy will be bigger than Germany by 2029/30

• CIVETS-based companies will make up a fifth of the FTSE 100

• National sovereignty subsumed by global corporate power

Birmingham and its surrounding metropolitan area will suck in inward investment – not just from the UK, but also from abroad – on a scale never previously seen. Companies will migrate and relocate from London and the over-priced and overcrowded south-east of England, tempted by fast connections, cheaper housing, better access to countryside and a skilled workforce. Not even the Dudley accent can stop this economic transformation.

The Centre for Economic and Business Research (CEBR) has predicted that Germany will have a smaller economy than the UK by 2030. It put this down to the UK’s faster population growth and reduced dependence on the other European economies. However, if there should be a break-up of the euro, Germany would have a ‘harder’ currency and higher dollar-rated GDP, meaning a “Deutschmark-based Germany would not be overtaken by the UK for many years, if ever”.

The CIVETS powerhouses – no, not the coffee cherry-expelling mammals from south-east Asia, but the six emerging economies of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa – pepper the FTSE 100. Boasting diverse and dynamic economies and young, growing populations, CIVETS are the new BRICs.

Britain long ago handed over its national sovereignty to global corporations after signing up to the transatlantic trade and investment partnership – TTIP – negotiated in secret by the European Union and the United States. It means large corporations can sue national governments that prevent them from making profits, even if it’s detrimental to national health, the environment, the economy or food safety. Public services became an unpoliced hunting ground for the worst excesses of private companies motivated primarily by profit, rather than people’s needs.

Banking

• Pensionism – crowd-funding consumer investism

• ‘Caring capitalism’

Crowd-funding generation X pensioners have learnt to redefine the way their retirement investments are made through a renaissance of the armchair investor trend of the 1980s. This self-determinable ‘consumer investism’ has taken over from the banks’ role in building a portfolio, is cheaper and less risky, and would make any fiscally astute fan of Coupland proud.

Cynics are having to eat their neo-liberal hats as caring or conscious capitalism, defined as businesses that serve the interests of all major stakeholders (customers, employees, investors, communities, suppliers and the environment), continues to build sustainable profits and inclusive empires.

Conscious capitalist brands outperform traditional companies by ten to one and garner ever more investment community backing purely on their superior returns to their backers.

Technology

• Corporates will trade in cryptocurrencies

• We’ll have one account for everything

• Businesses will be fined for holding paper documents

Currently, an object of suspicion and associated with the murky world of the black market, Bitcoin and its luminaries have led chequered, if nascent, lives so far. But the advantages of the free movement of capital, low fees, elimination of currency conversion and high security will see businesses utilise cryptocurrencies in international trade within the next 15 years. That growth, in turn, will see markets that are now restricting the use of e-currencies relax their laws.

Roaming profiles are something Financial Director foresees in the (relatively) near future, too. We will have one account for everything: social media, banking, utilities and taxes. We will ‘attach’ and ‘detach’ our profiles from these entities as we go, according to our preferences and/or circumstances. The one-stop shop will put an end to having to remember all those log-in credentials we keep forgetting.

And in line with keeping everything in one place, we expect that companies will finally go fully paperless, with fines for those that fail to do so. In the name of sustainability and tidiness, surely the only paper thing you’ll be able to find in the best offices in 2029 will be copies of Financial Director.

Tax

• Tax code will be leaner and meaner

• Tax and National Insurance will merge

• HMRC will be privatised

The great and good across the tax profession all agree the tax code is too long and complex, and we end up with arbitrage and tax avoidance due to that complexity. There has long been a desire to address it, and so we’d like to think that between now and FD’s 45th anniversary issue we’ll be operating under a simpler, clearer tax code.

In that vein, we are tantalisingly close to having income tax and National Insurance unified, and getting that tacit admission that NI has always been a tax. That, we suspect, has been part of the hold-up since this publication made the same prediction in ‘99 but, like the desire for simplification, there is a drive to reconcile the two. We’d like to think the next 15 years is time enough to achieve that.

On a less edifying note, we suspect HMRC may be privatised in that time. Many of its functions – such as its call centres – are outsourced, and given many other government functions, such as sections of the NHS and prison service, are doing so, it would be naïve to believe the tax authority would be exempt. ?