AS Sir Win Bischoff approaches his first anniversary as chairman of the Financial Reporting Council (FRC), Financial Director caught up with the septuagenarian City grandee to discover his take on the key issues impacting on the overlapping spheres of the accounting and audit profession watchdog’s world.
Perhaps most pressing is the long-running saga of the MG Rover/Deloitte debacle that has rumbled on for close to a decade since the doomed carmaker collapsed in 2005 with the loss of 6,000 jobs.
In late January, the Big Four firm scored a minor victory against the FRC after it successfully overturned a number of charges in its appeal over the record £14m fine levied against it by the watchdog. The appeal panel has yet to announce the level of its revised penalty. An appeal tribunal endorsed the appeal by Deloitte and its now retired partner, Magshoud Einollahi, who was cleared of eight counts of deliberate professional misconduct charges. It also overturned the charge that Deloitte acted against the public interest. However, the panel upheld five charges of failing to account for conflict of interest and the need for accountants to act with objectivity.
The former Lloyd’s and Citigroup chairman is somewhat philosophical over the outcome, but is keen to point out that, despite the FRC’s partial victory in the case, it is important that it continues to take on and prosecute those it believes have fallen short of the standards and conduct expected of the profession.
“Should you only bring cases where you are 100% certain to win? Or should you, on the bounds of probability, bring cases even if they might not be held up? You obviously shouldn’t bring cases that you’re bound to lose, and you shouldn’t be afraid of losing, but we should be afraid of having everything turned down completely … because that would be demoralising,” says Bischoff.
“One thing that does worry all of us is the length of time these things take. We’re trying to do something about that but it’s not necessarily very easy because we’re usually a ‘tail-end Charlie’ after some other enquiries have taken place.”
He put down the somewhat glacial pace that investigations and wider probes can take to the fact that the FRC doesn’t “have the ability to get to the information as well as some other bodies do – let’s say the SFO or FCA – and they usually have first crack at it, and then we look at it, so it does move more slowly. We are very conscious of this and we are trying to speed it up.”
However, Bischoff, who also boasts a number of other current and former roles with property outfit Land Securities, US pharmaceutical giant Eli Lilly, Turkish bank Akbank and insurance behemoth Prudential, is clear that the FRC does not need to agitate or lobby for greater powers.
“On the audit side, I think we have the right powers – and it depends on the government as to what powers they want us to have. I think it’s really important that we run things more concurrently, rather than waiting until someone else has finished their work. But will it suddenly turn years into months or weeks? I don’t think so,” he says.
Citing the recent Tesco scandal, he points out that the SFO will have had the evidence first. “We quite clearly are not allowed to interfere, so it will take longer, but I think there are ways that some of the work that we think may be necessary – the preparatory work – can be done concurrently with somebody else investigating,” explains Bischoff.
Since its reform in 2012, the FRC’s historical backlog of cases has been cleared and a supervisory enquiries team has been established, tasked with proactively monitoring potential abuses of power.
And Bischoff insists that its existing funding formula was the right one despite Deloitte’s apparent ability to financially outgun the FRC in the tribunal, given the Big Four firm’s far bigger legal team – evident at the tribunal hearing.
In its recent Draft Plan, Budget and Levy Proposals for 2015/16, the FRC said its overall expenditure will rise to £33.3m in 2015/16, from the £31.2m estimated spend in 2014/15. The most significant increase, £1.2m, will be incurred through the cost of audit quality reviews, an increase of 12.5%, which is due to Competition and Markets Authority (CMA) recommendations.
“I don’t think we need a huge amount of funding on this – obviously to the extent that we have funding on this and it comes from the industry itself. It’s an oddity, but there it is,” he says. And Bischoff denies the FRC might have to choose its fights more carefully.
“We should not be afraid of losing. But be afraid of having everything turned down completely – a succession of things where the tribunal didn’t give us any credit for anything we put forward – because I think that is demoralising and then the industry will also think we are going to lose. We have to have an element of success but it doesn’t have to be 100% success,” says Bischoff.
Diversity of approach
Last October, the FRC was criticised at an ICAEW Council meeting for failing to adequately represent the profession for which it is responsible, specifically the smaller end of the market – there is a distinct lack of representatives from the SME sector on its board and councils.
Currently, just one member of the regulator’s main board holds a role outside of the Big Four accounting firms, civil service and large listed financial service firms, which otherwise provide the board’s members. And of the 29 members sitting of the FRC’s audit and accounting councils, which advise the main board, only one currently sits on the board of an AIM-quoted company.
Bischoff says he is keen to redress the balance, but in what emerges as something of recurrent theme, time takes on a somewhat more esoteric tinge at the FRC. Not in the sense of an obvious faultline – more in the way that a fully laden oil tanker takes a while to change its course.
He says he would like to see more diversity of thinking and geography, with a distinct shift away from a London and South East bias.
“We are aiming to have someone from the SME sector on the board because they look at things differently from the FTSE 100 … and you don’t do this overnight: people stay on the board here for three years, and possibly for another three years. So there is a turnover here and I think we can use that turnover quite well,” he explains.
And as a member of the 30% Club – an organisation set up with the goal of getting that eponymous percentage of women on FTSE 100 boards by end 2015 – Bischoff admits that they’re “not quite there” yet in terms of female representation, at 23%. But it is nonetheless a dramatic improvement on the 12.6% figure at the club’s inception in 2010.
He believes they’ll hit Lord Mervyn Davies’ figure of 25% by year end in 2015 in the FTSE 100, and will then attempt to “permeate that through the FTSE 250/350”. The next task will be to ensure that the proportion of women sitting on management or executive committees is “much higher” by 2020.
Enjoying the ride
And what legacy would he like to leave?
“I think we all recognise that regulation is important, particularly in a complex world, but I’d like to feel that people will ultimately say that we regulated where we’d make a difference, rather than for minutiae,” he says.
“There’s a great danger that regulation can strangulate. Regulation is important and people have to be protected – I have no doubt about that – but we also need to be sure that it’s a benefit to the country as whole.”
But for now at least, the Anglo-German financier – who began his banking career at Chase Manhattan in 1962, before rising to chief executive and then chairman of Schroders, after a spell heading up its Asian operations in Hong Kong during the early 1970s – is focused on continuing to enjoy his 50-plus-year financial ride.
“It’s fascinating – it really is interesting. One is learning something new all the time, having to exercise one’s mind a bit, and some of the areas I’m involved in I know reasonably well. The thing about being in business is that we all make mistakes, but it’s very important that your mistakes are small ones. What brings you down is to make a bad call on something big. That’s the problem. You have to be very thoughtful when you get involved with something big,” says Bischoff.
However, just a few months after being appointed to head up the board at JP Morgan’s $15bn (£9.7bn) European operations, Bischoff is adamant that he won’t be taking on any more roles and hinted that it was the beginning of the end.
“I’m here (at the FRC) for three years and then who knows,” concludes Bischoff, who earns £120,000 a year from the FRC for working an average of two days a week. “I might be here for another three years after that – but this will be the last one. I certainly won’t do anything after this; that’s for sure.” ?
IN BLACK AND WHITE
2014 – present Chairman, FRC
2009 – 2013 Chairman,
2007 – 2009 Chairman, Citigroup
1995 – 2000 Chairman, Schroders
1984 – 1994 Chief executive, Schroders