ICSA Annual Conference: Day 2, afternoon sessions

The ICSA ANNUAL CONFERENCE 2016

Succession planning: delivering value through Nomco

ICSA Annual Conference March 2016

Succession planning: delivering valueICSA Annual Conference

9th March 2016

Mark WeardenMSc FCCA FCISDirector: MBS GovernanceSenior Lecturer: Lincoln Business School

Catherine HortonCorporate Governance Policy AdvisorFinancial Reporting Council


We know the problem…......................

PALEMALESTALE




We know the problem…......................

.......................what are we going to do about it?


“The board is responsible for determining the nature and

extent of the principal risks it is willing to take in

achieving its strategic objectives.

The board should maintain sound risk management and

internal control systems”


GOVERNANCE OPERATION

Strategy Risk Control


NOMINATION COMMITTEE


It is important to consider a diversity of personal attributes among board

candidates, including; intellect, critical assessment and judgement, courage,

openness, honesty and tact; and the ability to listen, forge relationships and

develop trust.

Diversity of psychological type, background and gender is important to

ensure that a board is not composed solely of like-minded individuals.

A board requires directors who have the intellectual capacity to suggest change to a

proposed strategy, and to promulgate alternatives.


Well balanced board…......................

...............................but we need to think deeper?

STRATEGY needs PEOPLE to devise and considerPEOPLE to deliver

RISK needs PEOPLE to analysePEOPLE to monitor

CONTROL needs PEOPLE to enablePEOPLE to review



NOMINATIONCOMMITTEE

BOARD


2016GOING

CONCERN

Your own footer

EXAMPLE TEXT

2017 201820152014

S U S T A I N A B I L I T Y


The FRC perspective…......................

.......................what are they hoping will happen?

Catherine HortonCorporate Governance Policy AdvisorFinancial Reporting Council

Strategy in Practice: Navigating the examinationRoss Thompson

Agenda

1.Paper Structure2. Case Study paper3. Top tips for success

Ross Thompson, SIP Examiner

• Experienced strategy academic and practitioner• Held posts at Universities of Northampton and Oxford

Brookes• Previous management and company secretarial experience

in industry and the NHS!

The study text

Things to remember:

• Check the ICSA bookshop online to make sure you have the most recent edition.

• Plan out your study so you cover all the chapters.

• Note the additional strategy sources in the bibliography such as Johnson and Scholes and Grant.

The study text

Warning!

• The text is an excellent content repository and pointer to further sources.

• Do not fall into the trap of simply memorising the content; you need to understand the concepts and practice applying them to example questions - consult past papers guide here.

The study text

Warning!

• The text outlines various models and concepts.

• A good idea is to produce a model grid which lists chapter headings/topic areas and the models that apply (some models are multi-applicable). It is vital to use models in the right context.

A model grid

Topic Models relevant

External environment (ch 3) Insert here???

You can continue the grid by adding chapters/topics and relevant models

SIP paper

You must attempt any four questions from a choice of 6 - 4 questions are based on the pre-seen case study. All questions equally marked:

• Make sure you understand the case study and attempt further background research on the case context ie for Nov 16 this was professional services.

• Make sure you plan each answer.

• Make sure you attempt all questions.

• Make sure you identify the command verb in each question

•(what you have to do)

• Make sure you budget your time correctly.

•Do not over run on a question!

Sample paper: LAP 239

Activity 1:

• How much time should you budget for each question?

• How much of that time per question should be allocated to planning?

• what was the command verb in each question and what does it mean?

LAP 239 - Question 2

Feedback:

• Note the succinct essay plan - is this long enough?

• Driving factors tend to be very general - make them more specific and use case material as evidence.

• Answer lacks depth throughout, eg on “costs” should really spell out how costs are really driving the need for change.

• Could have used a better model eg Robbins and Judge - applying models is key in this paper.


Activity 2: Identify the good and not so good parts of question 3. What was the command verb?


Activity 2: Identify the good and not so good parts of question 3

• The good:

•Technical understanding, good layout esp. part b

•Model awareness - a good range used too - Schien, Deal and Kennedy etc

•Some good model application

•And not so good:

•Limited depth of argument eg justifying “macho culture”: needs argumentation and case support


Feedback

• Note how the student follows the question - looks at factors and NOT features (an easy trap to fall into). This is how planning helps - it makes you think about the command verbs in the question ie what you are supposed to do.

•Again points quite general - should contextualise around the case.

•In part b there is limited critical thinking: students displays technical knowledge but not high levels of critical thinking


Feedback

• Again note how the student follows the question.

•Discussion though is limited.

•Student uses examples: this is good and adds depth to your answers - these can be real, from your own company or even hypothetical.

•In part b it appears student is running out of time; points are very brief eg “stuck in the middle.” Time planning?

•This is the only instance that you should consider using bulleted lists

So what tips emerge from this exercise? (Top tips)

• Exam technique

•Plan each answer - it saves time and keeps you focused.

•Know how long to spend on each answer and keep to time.

•Avoid bullet points unless you are strapped for time.

•Know what is required by the command verb(s)

•Write in depth…...


• How to write in depth:

•Use examples.

•Use case material (you can lift passages in speech marks in order to reinforce your points or use extra case research material you have sourced.

•Use additional reading.

•Develop a rounded technique - focus not just on explanation (unless this asked = unlikely) - but on implications, strengths, weaknesses, similarities with other points, contextual issues, sustainability issues etc.


• Model and concept usage:

•Avoid drawing or explaining models; just get on and apply them!.

•Know which part of the syllabus each case relates to.

•Remember to use models to guide and help you not as an end themselves

•Be prepared to criticise and adapt models - this is an advanced skill that will be credited (invariably).

•Design your own model grid!

Connecting with ICSA

Talk to other ICSA students via:

The ICSA LinkedIn student group

Facebook

Twitter

Thank you and any questions?


The future of board minutes

There were no slides for this session

The ICSA Annual Conference 2016- Assessing and managing Behavioural Risk

John Hurrell CEO, AirmicWednesday 9th March

2016

www.airmic.com

The Association for those responsible for risk management and / or insurance in their organisations

1200 members in 450 companies generally with turnover in excess of £1bn

Extensive research programme into risk related issues

www.airmic.com

• The UK Corporate Governance Code 2014 sets out explicit responsibilities for risk management and internal controls.

• The guidance includes specific reference to risk culture and assurance – to ensure that an appropriate culture is embedded throughout the organisation, including embedding risk considerations into reward systems.

Background

www.airmic.com

• Most risk failures are directly or indirectly as a consequence of inappropriate behaviours.

• Effective risk governance is achieved through the promotion of effective cultures and behaviours.

Culture and Behaviour – Airmic research findings

www.airmic.com

Roads to Ruin (Cass Business School)

Detailed investigation into the risk management failures at AIG (2005 – 2007), Arthur Anderson (2001), BP – Texas City (2005), Buncefield (2005), Cadbury Schweppes (2007), Coca Cola Dasani (2003), EADS Airbus (2006), Enron (2001), Firestone (2000), HSBC / Nationwide (2006), Zurich (2006), Independent Insurance (2001), Land of Leather (2008), Maclaren Pushchairs (2009), Northern Rock (2007), Railtrack (2000-2002), Shell (2004), Soc Gen (2007), UK Passport Agency (1999).

Lessons from – Ruin vs Resilience

www.airmic.com

Roads to Ruin 2011 (Cass)- Why did companies fail?

• Lack of board skill and NED control• Board risk blindness• Leadership failures• Poor communications• Organisational and risk complexity • Inappropriate incentives• Risk management ‘Glass Ceiling’

Lessons from – ‘Ruin vs Resilience’

www.airmic.com

Lessons from – ‘Ruin vs Resilience’

Roads to Resilience 2014 (Cranfield)- Why did companies succeed?

• Exceptional Risk Radar• Flexible and diverse resources and assets• Strong relationships and networks• Rapid response capability • Constant review and adaptation

www.airmic.com

Roads to Resilience

In depth case studies of;

AIGDrax PowerIHGJLR

Reviewing

• People and culture• Business Structure• Strategy, tactics and operations• Leadership and governance

ODATTPVirgin AtlanticZurich Insurance

Case study research into what does ‘good’ look like - Cranfield Business School 2014

www.airmic.com

Risk Radar

• Everyone is responsible• Constant vigilance• Complacency engineered out• Constant questioning and challenge• Communication critical Case Study

AIG Vulnerability Identification

Process

www.airmic.com

Relationships

• Shared common purpose• No blame culture – (“fix the problem” culture)• Flatter Structures• Engaged leaders

Case StudyVirgin and it’s sub-

contractors

www.airmic.com

Rapid Response

• Quick and appropriate action• Defined processes and teams• Ability to identify appropriate resources quickly• Rehearsing and practising

Case StudyODA and terrorist

threat

www.airmic.com

Diversified Resources

• Actively managed dependencies

• Active networks with ability to switch rapidly

• Availability of crisis management expertise Case Study

Virgin ‘Red’ Team

www.airmic.com

Review and Adapt

• Active investigation through scenario planning• Learning is a core value• Near misses must be communicated• Active and transparent responses

Case StudyDrax ‘near miss’

voucher

www.airmic.com

Risk Responsive Roads to Resilience

Roads to Ruin Risk Compliant

Respond, Recover, Review

Prevent, Protect

& Prepare

www.airmic.com

• It’s all about state of mind….

Why do so many companies appear unprepared and unresponsive when the crisis hits?

www.airmic.com

Risk Governance perceptions – Before the crisis

www.airmic.com

The reality - after the crisis

www.airmic.com

Black Swans

• Black swans represent 'unknown unknowns'.• As such, how can you plan for them?• But our research shows that you do not need to.• It's not black swans which are the threat!• It's ..............

www.airmic.com

It's Black Elephants!

Our research shows- • The black elephant was always in the (board) room• But nobody saw it!• Or if they did, they chose to ignore it• But this black elephant had been visible to many within the

organisation• And obvious to all once the crisis had hit

www.airmic.com

Oversight of culture and behaviour

1. Embedded culture • Who assesses the impact of reward schemes / incentives on the

company’s approach to risk? Is this being managed?• Does the culture allow people to admit mistakes? Are the lessons well

communicated? Is there a ‘speaking up’ policy?• Does the board / senior management give a clear lead on risk

management? Is this supported by visible behaviour?• Are risk related communications open, transparent, honest and objective?

www.airmic.com


2. Information and Communication • Do board papers and supporting reports allow well informed board

discussions?• Do board members seek to understand cultural and behavioural risks?• Do the board understand risk inherent in the business model?

www.airmic.com


3. Information and Communication • Is the desired culture and required behaviour well communicated to

employees and networks?• Do the board / senior management assess whether these messages have

been understood?• Are employees and management aware of the need to report any risk

circumstances relating to brand and reputation?• Is there a ‘Risk Management Glass Ceiling’?

www.airmic.com


4. Accountability • Do NEDs feel empowered to seek further clarification and assurance

beyond the information in the board pack?• Are employees empowered to rectify risk related problems which they

identify?• Are risk agendas for board committees and senior functions

adequately co-ordinated, integrated and cross referenced?

www.airmic.com


14.30 Breakout sessions


The Small Business, Enterprise and Employment Act 2015


Financial Reporting and AnalysisDavid Oakes, ExCel, 9 March 2016

Today’s session

1. To provide students with help on:

• their approach to the Financial Reporting & Analysis exams

• key topic areas under examination conditions

2. To provide students with an opportunity to:

• look at authentic student scripts for further guidance

What we are going to cover

Analysis of exam papers – Financial Reporting and Analysis (Q1, Q2, Q3,Q4)

• Tackling exam questions

• Examples of student scripts

Roles and responsibilities

About me

• I have been an academic for 25 years, London, Manchester and Durban, South Africa.

• 13 years in industry before that.• ICSA examiner for Financial Reporting & Analysis for 3 years now.• Setting exam papers is a challenging task – trying to make questions topical,

manageable yet challenging – students are not Financial Accountants.• Good grasp of Financial Reporting issues important for a Chartered Secretary.

Some key topic areas

Remember the whole syllabus is examinable

• Financial Analysis

• Published accounts – single company (Statement of Profit or Loss, Statement of Financial Position, Statement of Changes in Equity + Statement of Cashflows.

• Group Accounts – Subsidiaries + Associates

• Accounting Standards (IFRS)

• Conceptual Framework

• Professional Ethics

Exam format• 15 minute reading time

• Choose four questions to answer from six• Mix of numerical and discursive content• 25 marks per question• Question parts and split mark allocation

Exam format continued

• Compulsory Question 1 – Financial Analysis• Questions 2 & 3 – typically financial statement preparation• Question 4 – typically Accounting Standards• Questions 5 and 6 – typically narrative questions *

* Questions 2 – 6 will become more of a mix of calculation and discussion in future exams.

Numerical question: advice

For numerical / calculation elements:

• Layout of your answer is important (correct headings of statements)• Workings and end results (referenced)• Interpretation of numerical answers and part b’s

Numerical question: advice

For numerical / calculation elements:

• Layout of your answer is important (correct headings of statements)• Workings and end results (referenced)• Interpretation of numerical answers and part b’s

November 2015 statistics

QUESTION AREA POPULARITY SUCCESS

1 FINANCIAL ANALYSIS 100% 52%

2 CONSOLIDATIONS 84% 53%

3 CASH FLOW STATEMENT 71% 53%

4 ACCOUNTING STANDARDS 20% 43%

5 GROUP THEORY / FIN ANALYSIS 61% 40%

6 CORP. GOVERNANCE / XRBL 61% 46%

Examiner’s comments for Question 1

Performance in the compulsory question was generally good and some fine answers were prepared. Most students calculated 8 correct ratios which represent very easy marks in the context of the paper. The question gave plenty of information which should have guided the student to the correct conclusions to explain the ratios produced.

The general theme of the question was fairly clear – a comparison of two small companies with different philosophies regarding expansion and risk. Confusion around the gearing ratio was less noted, but still evident however. However, reiterating the main problem in this respect:


Students often use the formula debt / equity which gives a relative proportion of the sources of financing. In the Buildit company case for example, they would calculate 40,000 / 105,875 = 37.8% as opposed to debt / debt + equity 40,000 / 145,875 = 27.4%. Their comments would then refer to the company obtaining 37.8% of their total financing from debt which is not correct!

This issue will doubtless be a recurring theme in future questions and needs to be addresses by students in their analysis.

Weaker answers indicated that the candidates had not prepared adequately for questions relating to the analysis and interpretation of accounts. For example, some answers did not calculate basic accounting ratios accurately. Some flexibility is allowed in terms of ratios calculated (see gearing notes above) because there is no standard set of ratios, but some are clearly ‘wrong’.


Some failed to calculate the minimum suggested number of eight ratios. Others included very little commentary or inaccurate comments or merely stated the results of the ratios calculated without adding any value to the calculation – for example ‘revenue was bigger’. Others merely stated the facts from the question – like one company was more of a risk taker without expanding on how that impacted on the financial statements.

One other frequent problem was the number of students who wasted time discussing the appointment of large accounting firms, the payment of commission and the provision of bad debts as a set of corporate governance issues. The question did not require commentary as to whether these are desirable practices or not, they were merely presented as facts that had influenced some of the costs incurred by the two companies. Such facts will appear in future questions – but unless specifically required by the question students are wasting their time discussing the wisdom of such matters.

Key requirements of analysis answers

Normally a maximum of 8 ratios (for each year)

Ratios and analysis need to cover all key areas:

• Profitability• Liquidity• Use of Resources• Capital Structure• Overall financial performance and financial position• Required advice

Student answer to question 1• Review of printed version of student script

Examiner comments on Question 2This was primarily a consolidated statement of profit or loss question, was very popular amongst students, and there were some fine, and indeed perfect answers.

Most students demonstrated a good understanding of consolidation principles which was generally enough to earn pass marks on the question. Basic calculations of adding together the two company’s revenue etc. was done well and earned easy marks.

The two separate requirements regarding goodwill and non-controlling interest (NCI) were not done very well however and few students got these calculations correct.

Calculations of the profit attributable to NCI was not done well however and needs to be considered more carefully.

A few students still demonstrated a general lack of understanding however, (e.g. only adding 75% of the subsidiaries figures to the parent) and repeating students will need to increase their understanding in this area.

Key requirements of consolidation answersCalculation of:• Goodwill• Consolidated Retained Earnings• Non-controlling interest

Preparation of primary statements:

• Statement of profit or loss or other comprehensive income• Statement of financial position

Knowledge of definitions – subsidiaries, associates, control, significant influence etc.

Student answer to question 2• Review of printed version of student script

Examiner comments on question 3This ‘Cash Flow’ question was also popular and was set at a fairly basic level with few complications. and there were many excellent answers.

A key requirement is to indicate whether cash flows were positive or negative, and there were several instances where correct figures were inserted the wrong way around – e.g. an inflow was shown in brackets.

The tax calculation was generally done well including the correct treatment of the deferred taxation.

The supplementary written section (part b) was not done well however, and few students understood how the prescribed circumstances could have arisen.

Key requirements of published account answers• Enter proper headings for statements• Show detailed workings neatly and clearly – reference to financial statement• Each component of a working worth individual marks• Good workings presentation – columnar format is ideal• Statement of changes in equity are normally very easy marks• Normally easiest question on the paper – earns highest marks in many cases• Knowledge of accounting standards is very important

Examiner comments on question 4This question (which was not popular with students) covered various aspects of accounting standards, and produced answers of variable quality.

Many students seemed to have put some work into preparing for accounting standards questions, but the knowledge displayed in many answers was often not precise enough to pick up the available marks.

Answers were often brief in nature and such answers will invariably pick up few marks.

Summary and advice

-Answer all 4 questions- 45 minutes per question!- Main focus should be on core areas

- Questions and answers

Learning from charity governance failures:using the charity Governance Code to help rebuild public trust

ICSA Annual Governance 2016Rosie Chapman, FCIS

Voluntary and Community Sector Good Governance Code

Good Governance Code: existing principles

An effective board will provide good governance and leadership by:• Understanding their role• Doing what the organisation was set up to do• Working effectively• Exercising effective control• Behaving with integrity• Being open and accountable

Charity governance: raising the bar?

• Reflect shifting expectations on transparency and accountability

• Greater focus on board behaviours, culture and dynamics– Make regular reviews of board and board member performance

norm, not exception• Expectations of board terms limits and renewal

– Rigorous focus on skills, succession planning

Charity governance – raising the bar cond

• Embrace learning from other countries…– E.g. ‘generative’ in addition to fiduciary and strategic

governance• …and sectors

– E.g. role of Senior Independent Director

Three modes of governance

Not a hierarchy:• Fiduciary - ensuring the organisation is well run, financially sound,

complies with laws and regulations, and is faithful to its mission• Strategic - setting the organisation's priorities and course, deploying

resources, monitoring delivery, developing and reviewing various strategies

• Generative (or Creative) - engaging in deeper enquiry, exploring root causes, probing assumptions and generating new ideas and courses of action

Three modes of governanceFiduciary Strategic Generative

Role Sentinel Strategist Sense-maker

Key question What’s wrong? What’s the plan? What’s the question?

Problems are Spotted Solved Framed

Deliberative process

Parliamentary and orderly

Empirical and logical Robust and sometimes playful

Performance metrics

Facts, figures, finances, reports

Strategic indicators, competitive analysis

Signs of learning and discerning

Charity governance – raising the bar cond

• Tackle thorny issue of Board payment?– Governance and Compliance/Core survey of governance

professionals found that 63% are now in favour of trustees receiving remuneration for their work.

Contributing to the Governance Code debate

Email thoughts, ideas and suggestions to the Governance Code Steering Group’s secretary at

[email protected]

mailto:[email protected]

Questions and Discussion


Career development workshop
