Laws governing financial crimes within the market haven’t always been as quick to catch up with the trend of crimes themselves, as has law regulating more traditional crimes such as larceny or robbery. However, when it comes to fraud, the law is fairly clear, and the penalties are steep.
A company director making a false or misleading statement is committing a federal offense that carries the threat of serious prison time .
Fraud can take a number of forms from the top of company leadership
A company director is the figurehead of corporate leadership, and speaks directly for the company. It is against the law to misrepresent information that is relevant to the company’s status in any way that may impact investment decisions, manipulate stock prices, or otherwise influence the course of business and the market.
A common instance of fraud is when a company’s directors mislead investors as to the real state of the company’s financial health. Another form of fraud may be presented internally, such as if a CEO sends a memo to their staff informing them that they are running a quarterly profit, when they are in fact running a deficit.
Whatever the means, the law itself is pretty clear-cut. The sentence for making false statements can increase when additional counts are involved, and corporate fraud also involves other financial crime elements.
Other common forms of fraud that may be included in a bundle of charges against a company director for making false statements include:
- Wire fraud
- Money laundering
- Conspiracy to commit fraud
- Accepting or soliciting bribes
- Market abuse and insider trading
- Falsifying documents
A company director is the figurehead of corporate leadership, and speaks directly for the company.
Regardless of the charges, however, any charge is bound to come on the heels of an extensive criminal investigation. This may start with a complaint or anonymous tip. It could also arise from suspicions on the part of competing firms or directly from regulators or legal investigators.
The criminal investigation
Just as there are a number of ways for company directors to commit fraud through the issuing or simple verbalizing of false or misleading statements, so too are there a number of ways to get caught. Some of the ways a company director may be exposed for illegally making a false statement include:
- Being caught lying directly to a law enforcement or regulatory agency representative (ex: the FBI)
- Being exposed by a whistleblower within the company for circulating false information internally
- Being investigated and exposed by a regulator for false information leaked or spoken to associates for the purposes of manipulating the market
- Being caught inflating numbers in company publications or company disclosures
Of this list, getting caught lying to investigators seems like an unlikely path to downfall for a chief executive, but it happens quite often. For example, former MiMedX CEO Parker Petit was convicted of fraud in November 2020 after the Securities and Exchange Commission (SEC) found that he had falsified the company’s actual financial situation in SEC filings, with the associated securities fraud charge carrying a maximum sentence of twenty years in prison.
While not the same as lying to police in the interrogation room, falsifying an SEC filing, while it seems a brazenly reckless move to make given the consequences, is a common cause for fraud charges.
Running a legal defence to prosecutorial offense
Unlike most criminals, guilty company directors in fraud cases tend to have some of the best legal representation available on the planet. There are a number of mechanisms and legal arguments that a good defense attorney or company’s general counsel can employ when their company director is charged with making false statements.
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A primary line of defence is to attempt to argue that the company director did not know that what they were saying was false. This argument could be supported by evidence that another member of the company falsified the information. It could be chalked up to accounting error.
While a tried and not always true method of defense, a common approach is to simply deny that the company director did make a false statement. This is certainly a tougher argument to make if documented evidence suggests otherwise. Ultimately, these cases will come down to a combination of the strength of the respective legal teams involved and the truth itself.
As John Murdock, CEO of business intelligence experts Centage, explains below for Finance Monthly, this has begun to shift over the past decade due to technology and automation.
Companies like Botkeeper and MindBridge.ai are fully automating tasks like entry and validation of transactions, line items, compliance and auditing corporate books. Other companies offer platforms that streamline budgeting, surface trends hidden in data, and a wide variety of classic financial team functions.
As these functions move into software, one of two things will happen: accountants will lose their jobs, or automation will prompt them to radically transform the office of finance. Even if CEOs prefer people to AI, they may have trouble finding qualified accountants to staff their financial teams. According to Accounting Today: “Accounting, like many professions, is experiencing a shrinking talent pool as boomers retire and younger generations are opting for other careers.”
This evolution is going to kickstart some serious changes in the industry, which is why the AICPA, through its CPA Evolution project, is working to ensure CPAs continue have the skills needed to support the accounting profession. I see that there are five distinct transformations occurring in the office of finance that are a direct result of financial technology.
1. Finance teams are becoming business partners
Back office automation allows the financial team members to move in a more strategic, front-office role by offering their talents to the managers and department heads who run the day-to-day business. For instance, the financial team of a retailer can help the company optimize revenue per square foot, or understand the profitability of each product in order to tweak the brand’s merchandising strategy.
The financial team of a retailer can help the company optimize revenue per square foot, or understand the profitability of each product in order to tweak the brand’s merchandising strategy.
Personally, I see this as a positive development. I never saw the benefit of sequestering such an important role in the office of finance. The finance team is responsible for ensuring company priorities are funded. How can they do that if they don’t understand how or why those things become priorities to begin with?
2. Finance teams will recruit more graduates with business and operational knowledge, not just accounting degrees
The more the financial office moves to the front-office, the more executives will value people who have degrees and backgrounds in business strategy, market differentiation, and competitive positioning. These are the skills that inform strategic decision-making and can help the business chart long-term strategies.
This is a reversal of a trend that began after the 2008 financial crisis and the passage of Sarbanes-Oxley. According to the executive search firm Spencer Stuart, the number of CFOs with CPA certification rose from 29% to 45%. But now that compliance and auditing can be automated, I believe that CPA certification will be less of a priority for management teams.
The accounting industry itself is undergoing a similar shift. Non-accounting college graduates accounted for 31% of new hires across public accounting firms in the US in 2018. The Journal of Accountancy cites the need for tech skills as a primary driver of the shift: “Increased demand for technology skills is shifting the accounting firm hiring model,” Barry Melancon, CPA, CGMA, AICPA President and CEO and the CEO of the Association of International Certified Professional Accountants, said in a news release. “This is leading to more non-accounting graduates being hired, particularly in the audit function.”
3. More CFOs will have a non-traditional path to leadership
The other day I listened to a podcast of the Boston Red Sox, Tim Zue, describing his rise to CFO. He didn’t come from a finance background (he studied mechanical engineering in college). But after working for the Red Sox organization for more than 18 years, he developed a keen understanding of the business, which more than made up for his lack of a finance degree. He knew the right questions to ask in order to make strategic business decisions. As a result, he now believes that the only way to gain such a deep understanding is to get into the front office and work with the people who are running it day-to-day.
The only way to gain such a deep understanding is to get into the front office and work with the people who are running it day-to-day.
I agree wholeheartedly with Zue, not the least because I experienced the same trajectory in my own career. I earned my bachelor's degree in engineering and worked in sales and marketing prior to becoming a chief revenue officer. My experiences as CRO positioned me to become a CEO.
4. Technology will increase the demand for strategic thinkers
This may seem counterintuitive, but as AI merges with business intelligence to alert the finance teams to trends inside the business as well as trends within their markets, companies will need CFOs who are highly strategic thinkers. After all, if everyone uses the same software to guide decisions, they’ll all make the same decisions. We see this phenomenon in our everyday lives all the time. For instance, Waze does a great job of informing drivers of traffic congestion and suggesting alternative routes. But if enough drivers take that alternate route, it just creates another traffic jam.
To complete the metaphor, successful companies will need CFOs who can see the out-of-box alternative route to long-term sustainability and growth.
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5. Finance and engineering will merge
Financial degrees are already becoming more data and tech centric. This past October, the Pratt School of Engineering at Duke University announced it will offer a masters degree in financial technology. There is compelling reason why these disciplines are merging: both center around data. Fintech is still in its infancy, and it offers significant opportunities for engineers to build out automation around financial rules. It makes sense for engineering schools like Pratt to train their students in the ins and outs of finance. I can’t emphasize enough how radically the coupling of these disciplines will transform accounting and finance over the next decade.
Accountants and finance teams shouldn’t fear technology. It will certainly change the way they think about their roles, but that’s a positive, not a negative development, especially for ambitious people who are eager to play a more strategic role in their corporations.
Liz Beck speaks to Finance Monthly about elevating individuals, teams and businesses to become the best version of themselves.
What is your previous experience and how do you draw on it today?
My corporate career was in various HR roles where I had the privilege of working in Global brands such as Novartis Pharmaceuticals, Caradon and The Body Shop International. These years gave me important commercial grounding and the inspiration to build a business around people and the development of their potential. Today, I find myself working across many sectors including Pharmaceuticals, Retail, Banking, Manufacturing and Not-for-Profit.
What excites you about being a Coach?
For me, coaching is about giving people back their power and enabling them to be the best version of themselves - and it appears in many forms.
It is the opportunity to operate and experience at another level; to find out what is possible and how you can achieve goals, dreams and often things beyond your own expectations. I am endlessly inspired by what people discover and achieve as a result of coaching and it reaffirms my belief that people are capable of so much more than they ever realise – they just need the space, support, challenge and mirror to see the opportunities, which is exactly what coaching provides. You wouldn’t see a gold medalist without a Coach and there is good reason for that!
What are the typical ‘coachees’ that you work with?
Coachees come to me with a variety of objectives – to become a better leader; to create followship; to improve their performance; to realise their potential; to find better balance; to improve their influencing and stakeholder management; to get the next promotion etc. Each person, and their goals, is unique and coaching offers them a space where the agenda is really theirs - a space where they can think and work on their wants and needs and the other person in the room is their partner, dedicated to helping them get where they want to be.
People often ask me: “who is coaching for” and my answer is always the same - “anyone who wants to explore what is possible and how they can achieve more of what they want”. But coaching isn’t some fluffy space – it is a real commitment. The stretch can feel significant but the rewards can be equally so. I encourage anyone who wants to embark on a coaching journey to really explore what they want to achieve and be prepared to commit 100%. If you have a great Coach, they will expect nothing less and will hold you to that commitment. If they don’t, you should question how dedicated a partner they are for you.
To my delight, more and more individuals, teams and organisations are realising the power of coaching and how it creates sustainable change in behaviours and cultures. There has been a significant shift in recent years to this way of working and I think the opportunity now is to understand how coaching can integrate into a way of ‘being’ for organisations and teams rather than be a stand alone activity that is reserved only for specific objectives or individuals. I truly believe a Coach Approach has the power to change the world for the better. A big statement, I know, but imagine a world where people were healthier, happier, free of self imposed ‘rules’ and were therefore operating and contributing to society, organisations, families in a more productive way – that’s the world I wish for the next generation of employees and the ones that will follow after that.
What is your vision for the future of AspiringHR?
Aspiring is growing - across all our service areas. We’re supporting an increasing number of businesses with their HR, Performance and Development needs as well as expanding our individual and team coaching and culture work. We genuinely believe there is better to be had - in business, in leadership, in teams, in governments, in schools, in homes.......in us all.
Chris Dyson is an executive coach who runs a company called The Big Blue Box Ltd. He founded the company in 2002 as a vehicle for his emerging coaching practice, however, he’s been coaching full-time ever since. According to its founder, the mission of The Big Blue Box is to ‘unlock potential’ and its aim is to make a client’s working life more enjoyable, productive, fulfilling and, as a consequence of this, happier. This is achieved through coaching in a style which facilitates, supports and challenges people and, in doing so, brings about positive, life-changing results, both inside and outside the workplace. Here Chris tells us more about it.
What would you say makes you and The Big Blue Box ideally placed to provide coaching?
Whilst I did not consciously plan my career to bring me to this role, everything I have done in my life and career has contributed.
My coaching style has been informed and shaped by my experience in senior leadership roles, both inside corporate life and outside of it. I’ve experienced and worked through many of the things my coachees bring to our conversations. Rather than basing my practice on a single specific doctrine or pure theory, it has developed through my own experience and by observing what works for different coachees in different situations. My coaching practice is eclectic, integrated, flexible, practical, pragmatic and evolving. It plays to my strengths and draws on my capabilities.
I keep in mind my coachees come wanting tangible results and structure coaching accordingly. I come to the coachee’s chosen meeting location and ensure they get value right from their very first session with me.
Can you tell us a bit about your background career prior to setting up The Big Blue Box?
My career started as a graduate in retail, moved on to managing teams, then larger teams and ultimately - a nationwide organisation. I transferred to the supply chain, logistics and distribution side of things and moved through a series of general management roles before gaining Board experience as an Operations Director. An MBA enabled the step up to Managing Directorships through which I gained invaluable experience managing investors and shareholders and shaping leadership teams, operations and strategy.
How did the idea about The Big Blue Box come about?
Before starting the Big Blue Box, I’d always worked for other people. What I really wanted was to have control of my destiny. Initially, I became a bit of a serial entrepreneur - experimenting with a portfolio of business ideas and structures.
During this time, I was undertaking some consultancy when a client said: ‘Chris, can I have a word…?’ We went into a quiet office and the client asked if they could just talk to me about some things that were on their mind and had nothing to do with the project. I said OK and they started to tell me their concerns about their job, their boss, their career, their life!
It set me thinking - the client clearly found value in the conversation and applying what they’d gained from it had potential for greater immediate impact than the project I was working on. Equally clear was that I seemed to have an aptitude for this style of conversation. Back then in 2002, in the very early days before coaching was as mainstream as it is now, HR were cautious and senior leadership sponsorship was hard won so marketing was tough. However, early successes proved the concept and I developed my style and skills.
Coachees became advocates and my business grew organically. People I had worked with in one organisation moved on and introduced me to their new organisations.
What is The Big Blue Box, how did you decide upon that name?
I became intrigued by the simple idea of a tool box - somewhere to find the right solution for a problem, to find that special tool, to use it and then to put it back till it is needed again. Somewhere solid and stable to keep things – somewhere safe and secure with a lock and key. It is blue because that is a cool, calm, natural colour – but also suggests blue skies, space (and the cliché about ‘blue sky thinking’).
People find the image intriguing, it has the unforeseen benefit of being a great conversation starter when people ask about it! The phrase ‘The Big Blue Box’ is a bit tricky to pronounce, making it memorable. I also liked the anonymity of the name: like my coaching, it’s not about ‘me’. The name and logo just seemed to be right on so many levels.
What motivates you most about coaching? What inspires you to press further into your work?
Many people have said that they wish they could have my job. I love coaching, it seems very natural to me, and it doesn’t feel like work. I get to meet interesting people and to have engaging conversations with them. More often than not, there are ‘significant moments’ in the conversation, perhaps an insight, a connection, a moment of reflection or a realisation. A coach is like a catalyst - enabling a change to happen but unchanging themselves. Changes happen and it’s incredibly rewarding.
For a coachee, a coaching conversation is unlike any other conversation they might have with anyone else in their life – it’s not like a conversation with a boss or a colleague, a life partner, family member or a friend. Because it is confidential and like talking to a stranger, people open up.
People really value their coaching, almost every person says it is the only time that they can legitimately stop everything, and talk - the only time that it is just about ‘them’, when they can get some perspective, to reflect, think and plan. You can see their mood change, they often look different, smiling, calmer, clearer and focused, energised, resolute and decisive. Often, when we meet for the next session, people can’t wait to tell me about the things they have achieved.
But coaching is also part of my life in other areas – in my spare time, I work in a charity as an advanced motorcycling instructor.
How is coaching perceived?
In the early days, I recall one organisation responded to our marketing outreach by saying ‘Oh no, we don’t believe in coaching, they [our people] should be able to do their job’.
Until a few years ago, coaching was seen as a remedial activity, individuals would have been concerned about even engaging with a coach because of the signals it could have sent.
The balance is shifting, coaching is now seen as a powerful, premium intervention. Individually, people are now actively seeking out and engaging with coaching. Leading organisations are integrating it into their culture - they now understand and actively support coaching for their key people. Senior players in an organisation would usually seek out an external coach, for the stimulus and challenge but also to avoid any internal conflicts of interest or confidentiality issues.
What are the typical ‘coachees’ that you work with?
My coachees are almost exclusively employed within organisations. They are 30+, mid-life and mid-career, highly ambitious, experienced in their role and with significant responsibilities. They could be part of the talent pool, the high potentials, or the emerging or current leadership cadre through to Board level, C Suite. Their roles have titles such as: Head of, General Manager, Director, Managing Director, VP and Chief Officer. etc. They can be from any functional area or expertise and are highly skilled. Their professional skills are not an issue.
I also have a small number of private clients. These are often coachees who want to retain the coaching relationship beyond their corporate’s sponsorship. Several of my coachees and corporate coaching sponsors have even engaged me privately, to work with members of their family or recommended me to their friend’s.
What kind of challenges do you find your coaching helps with?
All my coaching is focused around improving the performance of the individual - at work. But if the ‘whole person’ comes to work then their performance can be influenced by factors inside and outside work. And the benefits can be outside the work context too.
Most coachees have complex lives, they are ‘time poor’ and have significant demands made upon them. They could be stressed or even overwhelmed, their behaviour may deteriorate, and relationships become strained.
They are often struggling to achieve a balance - between work and home, their own career and their partner’s, between ‘carer responsibilities’ for children and sometimes for aging parents. Support and resilience is tested. They don’t have time to care for themselves, their diet, exercise, or rest.
For some, the ‘rules’ change: before and after promotions or restructures, they struggle with detail and perspective, with the change from professional to manager or leader, moving from operations to strategy, from control to influence, and with understanding politics, negotiation and compromise. Some other challenges are: delegation and managing upwards, conflict – and how to manage it, time and personal effectiveness - perhaps with significantly overfilled in-boxes of ‘unread’ messages.
They don’t have somewhere to talk about many of these things, so decisions don’t get made and the cycle continues. That’s when coaching can help.
Do you work in particular industry sectors, what kind of organisations do your coachees work in?
Client organisations tend to be substantial, structured and with international reach. The organisations I coach in are diverse – I work across sectors including financial services and banking, industry and professional bodies, automotive and airlines, engineering and architecture, IT and media, consultancy and design, the NHS and central and local government and agencies, restaurants and entertainments. It’s interesting but whilst some organisations take comfort from knowing that I have experience in their sector, but really, it’s all about people, and actually, the ability to ask the apparently simple question opens up a new understanding.
Whilst the majority of my client organisations are UK-based, I have worked in Europe and I’ve continued to work with clients in the USA over several years.
How does coaching work?
Emerging understanding of the workings of the brain is very informative, particularly around stress and emotions. Change can be a challenge but raising self-awareness is a good starting point.
The key to unlocking our understanding of ourselves is often hidden in plain sight, but it may take someone else to help us to see it, coaching helps to find the key and implement the solution. For example:
The 50-year-old leader of the ‘stand out’ business unit in a global organisation had recently developed a fear of reporting at the global quarterly reviews. Asked to explain how that felt, the coachee said: ‘It feels like I’m back in the headteacher’s study at school’. From that insight, identifying the key to understanding their behaviour identified the precise trivial incident that triggered this fear, originally experienced in the headteacher’s study, but replayed in the board room.
Tell us about your coaching, is there a process that you go through with your coachees?
I may be given a briefing by the organisation about the coachee and I would decide to proceed if the brief fits my capability. Contact details would be exchanged, and an initial phone call would seek to answer any of the coachee’s concerns before a first meeting is arranged.
It may be an obvious point, but coaching sessions are held at a venue that is comfortable and appropriate for the coachee. This could be at their place of work, perhaps a quiet meeting room, or ‘off-site’. For me, having the flexibility to travel by motorbike is a great advantage, but it’s also often a connection, a conversation topic, and a useful metaphor.
One of the single most important factors in the effectiveness of any coaching project is the relationship between the coachee and the coach. One objective at this first meeting is a simple ‘Chemistry Test’ – can the coachee and I work together? I would also clarify the understanding around items such as ethics, boundaries, confidentiality, the initial objectives and the process. Almost invariably the coachee engages, the relationship is established, and the coaching happens ‘naturally’.
I undertake a ‘diagnosis’ with the coachee. Whilst there may be ‘presenting’ issues, sometimes the ‘real’ issues are only revealed by careful exploration.
The conversation gives the coachee time to tell their story. As the coach, my initial role is simply to listen, ask questions, observe patterns, unravel the details and illuminate them for the coachee. Challenges and suggestions may be appropriate. Sometimes, it may be helpful for me to share my own experiences, but it is all about helping the coachee raise their self-awareness.
There is usually some significant moment in the first session when something happens for the coachee. The conversations are often ‘emotional’ and can be life-changing.
I ensure that I have a clear understanding with the organisation that the coaching conversation is confidential. This means that I don’t report back to the sponsors about the discussion, the issues or the outcomes. Any reporting back to the organisation has to come from the coachee. Trust is essential.
Initially, I limit any coaching project to just 4 sessions – everyone expects results and a limit to the number of sessions tends to focus the attention. However, each session is of ‘indeterminate duration’ – as long, or as short as it needs to be. Usually the first two sessions can be 2 – 3 hours long, some are even longer. The purpose is to fully explore the coachee’s story, not to cut it short by time constraints.
I ask my coachees not to have important meetings just before or after our sessions. On several occasions, the immediate outcomes have been powerful enough for the coachee to want to go home after the session to reflect.
Later stages in the coaching process move to explore ways that the coachee could enhance their self-management and ability to be aware of and influence other people effectively, based upon their understanding of themselves.
I often encourage coachees to invite their sponsor or boss to join us for a 3-way conversation in our final meeting in the coaching series. This can be very impactful. In one case, over a period of time, a coachee had made themselves ill, striving for the recognition which had not been given to them as a child. Hearing praise from their boss in our 3-way meeting brought tears, and changed the boss’s behaviour too.
I ask all my coachees to complete an evaluation questionnaire as they move through the final stages of the coaching series. This captures their reflections and assessment.
What kind of outcomes can be achieved, how could our readers measure the outcomes?
Almost without exception there is one outcome all coachees achieve – they remark that the coaching conversation is the only time in their lives that they stop, have time to talk, to think, to reflect.
My coaching usually creates a multitude of outcomes which can be across any area of the coachee’s life, these outcomes could have an immediate and direct impact at work. Other outcomes, perhaps outside the work context, could be confidential for the coachee.
This creates a challenge for measuring coaching. Anecdotal, observation and self-assessment may capture the extent of the outcomes but not quantify the change. The coachee and those closest to them are most likely to have the best opportunity to determine the real outcomes. A report from the coachee and sponsor at the conclusion of the coaching and a further review after the passage of time would be a pragmatic approach.
Sometimes, an outcome could be a simple ‘quick win’. Email is often a significant cause of stress and poor performance, leading to poor communications and decision-making and the culture of the organisation is in part responsible. Strategies to achieve a ‘Zero Inbox’ might be a simple outcome and a quick win!
Hard outcomes, unlocking the potential in coachees include: winning competitive promotions, supporting succession and promotions to board level roles, accelerating career, team performance outcomes, behaviour changes in senior leaders – with consequent impact cascading through the organisation, catalyzing culture change within an organisation - introduction of a coaching culture, helping board members negotiate new roles and become strategic and politically more aware, enabling a leader to understand their response to conflict, enabling delegation with improved performance and engagement from direct reports.
Softer outcomes include finding or rebuilding a balance in life, improved relationships with work colleagues and crucially, also at home, being clearer about a career direction or career choice, gaining a greater sense of purpose, enhanced confidence, self-esteem, but also losing weight and getting fitter.
Life-changing outcomes, when significant change is achieved in several areas, are exemplified by the case of assisting a key person to return to work after an absence caused by stress. In the coaching sessions they re-examined their values, drivers and purpose, which changed their behaviours. This changed relationships at home and at work, and also rebalanced their lifestyle, which improved resilience, and their performance at work. Their talent was retained by the organisation.
What are your main goals for the future?
I’ve seen the business grow organically and by recommendation. I envisage that is how it will continue. It’s about the personal connection and I want to retain that.
I’d now particularly like to grow my business into the USA. I’ve got a significant number of coachees and a good network out there and I’ve tapped into some of the Government-funded support available. I’d like to see my US client base expand over the next few years, developing both my existing clients and connecting with new ones. I have been particularly successful in California, so that is a specific target area.
Website: https://thebigbluebox.wordpress.com/
The FCA has finally released its long-awaited consultation paper[1] (CP) on its planned extension to the Senior Managers and Certification Regime (SM&CR) to the vast majority of those firms regulated by it.
The FCA intends introducing this new extended regime on a proportionate basis and having regard to the plethora of activities undertaken by regulated firms, and the size and scale of individual firms. Here Douglas Cherry, Partner at Reed Smith, discusses with Finance Monthly.
The SM&CR consists of three principal elements which are the “core”, “enhanced” and “limited-scope” regimes.
The core regime applies to all affected firms and is the focus of this short discussion.
The enhanced regime will apply only to the very largest firms regulated by the FCA and is expected by the FCA to capture only around 350 firms in total. It requires additional detail, above the core regime and places additional individual responsibility in particular on risk, prudential and audit responsibilities.
The limited scope regime is effectively a ‘light’ version of the core regime for particular classes of FCA-regulated firms including: limited scope consumer credit, oil market participant and sole trader firms. These firms will not be required to implement the SMFs and are exempt from other requirements in the regimes too.
The core regime essentially sees those holding significant influence control functions under the existing regime mapping across to the newly defined Senior Management Functions “SMFs”. It also introduces the notion of the certification regime to firms.
Whilst the new SMFs are re-defined, there is little magic about those definitions, and those of you currently holding a Chief-Executive, Executive Director, Partner, Compliance Officer, MLRO and so on, will likely fall within these new SMF definitions. SMFs will be required to apply for the relevant designations and receive prior approval from the FCA before carrying out any duties at a regulated firm which fall within the definition of the relevant SMF.
The extended regime mandates adherence to a Statement of Responsibilities (SOR) by SMFs. The firm must articulate those duties for which the SMF holder is responsible and ensure that each impacted SMF-holder subscribes to that SOR. This is similar to the approved-persons regime, but in contrast to that regime, it creates a burden on the SMF holder to demonstrate to the FCA that they proactively discharge their prescribed responsibilities, and in the case of regulatory criticism; show that they took “reasonable steps” to meet their obligations.
Some staff will fall outside of the SMF definitions, and instead fall within the certification regime. These staff will not require pre-approval from the FCA. Rather, they must be assessed (on an ongoing basis) by the firm, as fit and proper to do their job. Certification staff will likely include those concerned with client assets and money (CASS oversight function), those heading up business units and those persons who have the ability to cause ‘significant harm’ to a regulated firm (including proprietary and algorithmic traders, and investment advisors amongst others.
The FCA expects to focus very precisely on how roles and defined and described and how the firm organises itself. From an employee perspective, firms may well start seeing senior staff being reluctant to be seen as SMF staff, where a role may be defined in manner that pushes it into the certification regime instead.
Whilst for may practical purposes, the regime changes do not fundamentally change the day to day approach at regulated firms, the very fact of the certification regime places a positive burden on firms (and the SMF individual with responsibility for this area of systems and controls as well) to actively certify at the outset an monitor on an ongoing basis, compliance with the fit and proper test.
The largest burden is likely to be the defining of roles and management time and effort spent in implementing these changes. The consultation runs through to 3rd November, and the new rules, in very similar form to the CP, to be in force from Q3 2018.
[1] Individual Accountability: Extending the Senior Managers & Certification Regime to all FCA firms CP17/25 July 2017
James Scouller spent nearly 30 years in the corporate world before becoming an executive coach. In that time he worked in engineering, fast-moving consumer goods, fashion retailing, packaging and wallpaper. In his last 11 years he held three international CEO roles. After the third, he left to set up The Scouller Partnership, an executive coaching firm, in 2004.
James coaches leaders and their teams – his clients are CEOs, heads of divisions and subsidiaries, MD-owners of smaller private firms, other senior executives and younger high-potential managers. Their age range is typically 35 to 55.
James is also author of The Three Levels of Leadership: How to Develop Your Leadership Presence, Knowhow and Skill, a critically acclaimed book which has received international recognition for its new ideas on growing leaders.
Why do you think executive coaching has become so popular?
Put simply, because it works.
Traditional training is great if you want to learn technical skills and absorb theory, like law or accounting. But as most of us have noticed, it’s not so good for transferring interpersonal skills.
Think of the people you know who’ve gone on expensive leadership courses. Did they behave any differently on their return to work? For almost everyone I’ve talked to, the answer is always ‘no’.
Why didn’t the training help? It’s because if we’re trying to learn and apply new behaviour that clashes with powerful limiting beliefs and the habits they create, the old beliefs and habits triumph every time. And that blocks the learning.
For example, imagine you’re teaching senior executives to handle difficult conversations better. They may hear what you’re saying, but deep down they often believe it’s risky to open up and say what they’re really thinking and feeling about the other person’s attitude or performance. This is because they’re often afraid of conflict or coming across as a nasty person. Those fears – which stem from limiting beliefs – will easily overwhelm an embryonic new behaviour. So under pressure they won’t change their behaviour even if they’ve practised several role-plays.
The only way to build and apply new behavioural habits in the face of powerful limiting beliefs is to surface and examine them. But I don’t know any executive who’d open up to the rest of the group on a training course and admit private stuff, especially stuff they are uncomfortable with. It’s not going to happen.
But it can and does happen in private, with a skilled executive coach they trust and respect. The coach can help the person let go of the old belief and build new habits that persist even under pressure.
In other words, the coach can go to places that the trainer can’t. That’s why I think executive coaching has grown so quickly in the last twenty years.
So what kind of results can clients achieve with good coaching?
It’s no exaggeration to say the effects of executive coaching can be transformational.
Let me show you two typical examples of before-and-after coaching profiles. Both clients scored themselves on 32 qualities – 10 focused on their mental performance state and 22 on their ability to choose their behaviour skilfully under pressure.
To make sure they weren’t kidding themselves, we also interviewed their colleagues at the start and end of the coaching assignments. In both cases, the observers’ comments backed up the clients’ own ratings.
The important thing to note is the dramatic change in both clients’ overall profiles.
As you can see from the first example, over 13 months the client achieved a huge change in her overall profile, with feedback from colleagues confirming she had become ‘much more effective … with greater leadership presence.’ You can see she changed all of her negative scores into positives. She’s since been promoted to a Managing Director role.
The second client’s challenge was to become a more skilful leader of organisational change. After 14 months’ hard work, he achieved a remarkable change in his overall profile. Feedback from his six observers confirmed the shift. His mental state changes laid the foundations for his improved ability to connect with and influence others while displaying greater leadership presence. He has now adopted a much more personal touch when communicating with both board colleagues and everyone else in his firm.
How does this kind of individual transformation benefit an organisation’s performance?
The major mental and behavioural shifts that you can achieve through good coaching always translate into performance gains for organisations – sometimes very quickly.
Nine years ago, I coached the engineering director of a £5m engineering firm in Scotland. His boss was the Managing Director and owner of the business. He’d hired the engineering chief three years earlier to help him win more business in four ways. First, by inventing new products. Second, by raising on-time delivery of customer engineering projects (as too many had been arriving later than promised). Third, by delivering the projects faster. Fourth, by responding quicker to customers’ requests for quotes.
The engineering director had been given money and three new engineers to support him. In all, the investment had added hundreds of thousands of pounds to the firm’s cost base.
After three years, there’d been no invention. On-time delivery of projects to customers (which was the most important metric of all) had worsened. Engineering projects were taking longer – so long they were now behind the industry average. And customers were receiving quotes even slower than before.
The Managing Director had done everything he could to help this man improve his performance. He was a fine engineer, but nothing worked. Unsurprisingly, relations between the two were tense.
I was hired to help the engineering director turn his performance around. With the Managing Director’s input we agreed three coaching goals to be achieved within seven months:
(1) Improve project on-time delivery from 40% to 80%.
(2) Cut project lead times from 11 weeks to 9 weeks.
(3) Raise the percentage of customer quotes answered within 5 days from 42% to 60%.
After seven months the results were staggering. The client had raised on-time delivery from 40% to 93%; well beyond the 80% goal. He cut lead times from 11 to 7 weeks (the best in the industry) and 2 weeks better than target. And he boosted the percentage of customer quotes answered within five days from 42% to 63%, just ahead of the 60% target.
The firm’s sales and margins soon increased and the ROI from coaching was clearly visible.
What is the key to getting results like these?
You won’t be surprised to hear there’s no single key, but certain basics must be in place. Yes, the coach must be well-trained. But more than that, coach and client must build a strong relationship based on two-way respect and trust. Clients must feel their coach knows what they’re doing, understands their challenges and that everything they discuss remains confidential. That’s the first thing.
Second, clients must be serious about growing as a leader. Clients have to put work in if they are to change their behavioural habits under pressure. The clients who get the best results with me are the ones who do what they said they’d do between meetings.
It’s important too that the whole process is measurable. After all, companies are paying for clients to be better executives or leaders than they were before the coaching. In other words, clients and their sponsors want to see positive change.
It’s essential to set measurable goals at the start, with feedback from the client’s colleagues, and measure progress as you go. At least halfway through – and certainly by the end of the coaching – the client and sponsoring firm should be able to see what change there’s been with measurable data. I don’t think coaches can forget that companies want a return on investment. You’ve seen how we can measure results from the earlier examples.
I’d say the fourth key is the coach’s own experience as a leader. Too many people approach leadership as an intellectual concept. To some degree it is, but as seasoned leaders know, it’s also a felt experience. Coaches working in the leadership field need to have experienced the pressure – the difficult times – of having to lead, of having to connect upwards, sideways and downwards. My own first-hand experience as a leader means I can understand other leaders’ personal challenges and emotions – plus the wider pressures on them coming from the rest of the company.
There’s a fifth key. If clients want transformational results, it means they’ll be working on their inner limiting beliefs, feelings and perhaps their values. Here it’s not enough for coaches to rely on tools and techniques. In my view, they need to be working on their self-mastery – that is, mastery of their minds and habits. Why? Because clients will have to work on self-mastery if they want to achieve transformational outcomes. Coaches must walk their talk and show their own commitment to self-mastery so they can act as models for their clients.
The final key is a clear coaching process that’s grounded in sound, powerful ideas around leadership and personal growth. Coaching shouldn’t jump around from session to session in a random way.
You mentioned powerful ideas so let’s talk about your book, The Three Levels of Leadership. Who is it for and why has it sold so well?
The book is a practical manual for leaders and people aspiring to be leaders. This is regardless of their field, whether it’s business, military, education, charities or whatever.
I think it’s sold well because it has new ideas and tools to help 21st century leaders meet their greatest challenges. It has probably the most compact, complete learning model you’ll find for executives wanting to grow themselves as leaders. I compare the book to a Swiss army knife – it gives you all the key ideas and tools you need in one unified, compact master model.
So much has been written about leadership already. Why do we need new ideas?
You’re right – the market for leadership books is saturated. But so much of what’s out there is either academic or based on personal experience. So it isn’t intended to – or able to – help leaders grow.
Meanwhile, all the data shows that business leaders are struggling to engage employees. And research shows repeatedly that the higher your people’s engagement, the higher your margins, innovation, customer service, growth and shareholder returns. The biggest survey I saw showed that only 13% of employees feel fully engaged and nearly twice that number are actively disengaged, meaning they’re prepared to commit hostile acts. The rest, just over 65%, don’t care at all. That’s not the only problem. Belief in business leaders’ competence, trustworthiness and honesty is 20% at best.
In short, leaders are struggling to lead. That’s why we need new ideas and that’s what I aim to deliver.
Could you give us a quick summary of the book’s main ideas?
The book provides an in-depth, easy to read collection of models and tools which I call the Leadership Mastery Suite. Keeping things simple, it has three learning blocks.
The first is mental model mastery. It’s about surfacing, unpacking and replacing your old mental models around leadership and being the leader to help you pay more skilful attention to what matters most.
The big idea here is what I call the four dimensions of leadership.
Let me explain. Without realising it, pretty much every leader I work with, holds unhelpful ideas (mental models) around leadership and what it means to be a leader. These ideas usually cause you and others serious problems. For example, they increase leaders’ sense of inadequacy. This magnifies your tendency to be too task-focused (and ignore the need to connect with and influence people) or be too relationship-focused (and ignore the need for clear tough choices and decisions).
Mental model mastery is about uncovering these unhelpful ideas, challenging them and then replacing them with something far more useful and practical: the four-dimensional view of leadership. Once that’s done, it’s about helping you understand the four dimensions in detail and the specific aspects you need to focus on in your role right now. This is the foundation stone for the other two learning blocks. Without this foundation, I’ve found most leaders find it harder to succeed.
Historically, I’ve used confidential one-to-one coaching in this learning block. However, I’ve recently introduced a one-day intensive for those who want powerful experiential learning in a group setting. I also offer an enterprise diagnostic to help leaders understand which of the four dimensions they need to focus on right now and which aspects within that dimension need action.
The second learning block is self-mastery. This is the most transformational of the three learning blocks. It’s about helping clients handle the four dimensions of leadership with more skill, presence, flexibility, energy, resilience and genuineness. This enables you to connect with and influence people better.
Self-mastery is where we get into limiting beliefs and the tools – especially a technique I call 4R – for helping you change your behavioural habits even when your hot buttons are pressed. The results you saw in those earlier diagrams came from self-mastery coaching. Most of my client work is in the self-mastery zone, although I expect my assignments in the other two learning blocks to grow in the next five years.
The last block is knowhow mastery. The aim here is to help you gain the technical knowhow most leaders lack in addressing the four dimensions of leadership, which was the big idea in the first learning block. If you set aside the question of seniority and sector, there are only four knowhow areas all leaders should master. They are:
- Time management: personal goal-setting and using your time well under pressure.
- Motivation: how to mobilise your colleagues’ intrinsic motivation.
- Leading wide-scale change: what research tells us about organisational change, how to create and put across a vision and how to apply my new Spiral-Waves change model in your company.
- Group psychology and team-building: my Dual Force, 3C and 7P models and how to use them to create and maintain teams.
For knowhow mastery, I combine one-to-one coaching with group coaching, team coaching, workshops and enterprise diagnostics.
What should readers do if they’re interested in learning more?
The ideas and tools I’ve touched on here are explained in the second edition of my book, The Three Levels of Leadership. If you’re interested in exploring coaching or any of my other services you can email me at james@thescoullerpartnership.co.uk and ask for a free “How to lead change” extract from the book. Or you can call me on +44 (0)1525 718023 to explore the Leadership Mastery Suite and discuss how I might help you or your organisation.
Contact details
James Scouller
The Scouller Partnership
Website: www.thescoullerpartnership.co.uk
Email: james@thescoullerpartnership.co.uk
Telephone: +44 (0)1525 718023
Global middle market organizations, companies with annual revenues of USD 1 million -USD 3 billion, are showing no signs of slowing down in the face of geopolitical uncertainty. Over one-third (34%) of middle market companies plan to grow 6%-10% this year, far outpacing the latest World Bank global GDP growth forecasts of 2.7%, by more than 3%-7%.
The findings released today in the EY Growth Barometer, a first-of-its-kind survey of 2,340 middle market executives across 30 countries, reveal that in spite of geopolitical tensions, including Brexit, increasing populism, the rise of automation and artificial intelligence (AI) and skilled talent shortages, 89% of executives see today's uncertainty as grounds for growth opportunities. What's more, 14% of all companies surveyed have current year growth ambitions of more than 16%.
Annette Kimmitt, EY Global Growth Markets Leader, says: "The global economic backdrop is much stronger than what the prevailing narrative has been telling us. Despite geopolitical risks and uncertainties, businesses being disrupted through new technologies and globalization rewriting the rules of supply and demand, middle market leaders are not only attuned to uncertainty, but are seizing it to grow, disrupt other markets and drive their growth agendas."
Growth ambitions vary across geographies
Despite facing two years of Brexit negotiations, start-ups (companies under five years old) headquartered in the UK are displaying the highest levels of confidence of the countries surveyed. UK start-ups are the most positive on current year growth ambitions with 26% seeking to grow by 11-25% and a further 23% looking at year-on-year growth of more than 26%.
But when looking at the largest markets, there are significant differences between the world's largest economy, the US where slightly more than a third (35%) of all companies plan modest growth increases of under 5%, compared to the world's two tiger economies – China and India – where together 42% of companies are targeting growth rates of 6%-10%. Moreover, a quarter (25%) of companies in tiger economies have current year growth plans of 11%-15%.
Technology and talent top the agenda
Executives identified technology and talent not only as the top two challenges facing the middle market C-suite today, but they are also seen as the tools by which they will overcome challenges and remain agile. Talent (23%) is cited as the top priority ahead of improved operations (21%), cutting red tape (12%) and beneficial agreements (8%) in a ranking of what is critical to meeting current growth ambitions. A staggering 93% of executives see technology as a means of attracting the talent they need. New developments in artificial intelligence (AI) are improving the recruitment and selection process for innovative start-ups to find specialist talent.
To fuel the growth ambitions of their organizations, more than a quarter (27%) of middle market executives plan to increase their permanent headcount and a further 14% plan to increase the number of part-time staff. Reflecting the growing impact of the gig economy on work patterns and a move to a more contingent, skills-based workforce, almost one in five (18%) companies plan to use contractors to help power their high-growth plans and fill specific gaps or needs.
However, under these global results lie significant differences in hiring plans. A majority of US companies (55%) plan to keep current staffing levels flat, compared with 31% of all respondents. These plans are almost reversed among start-ups, 53% of which plan increases in full-time staff. Nearly a quarter (23%) of all start-ups are also the most likely of all organizations to plan to hire more contractors or freelancers.
Kimmitt says: "Middle market leaders are using technology to attract and retain talent, accelerate growth, improve productivity and increase profitability. Uncertainty has become the new normal, and while geopolitical risks and trade barriers are influential factors, middle market companies are moving ahead with hiring plans."
RPA does not spell RIP to talent
While only 6% of middle market organizations are already using robotic process automation (RPA) for some business processes, the dystopian vision of large-scale layoffs is not shared by these business leaders. Fifteen percent of all middle market executive respondents believe that adoption of RPA will result in headcount reductions of less than 10%. This illustrates that middle market leaders are planning on the selective adoption of RPA to bring efficiencies to some routine operations, but as an adjunct to human talent, not a replacement.
Macro risks to growth
Middle market leaders cited increasing competition (20%) as the number one external threat to their growth plans, followed by geopolitical instability (17%) and the cost and availability of credit (12%). These threats were considered far more significant than financial headwinds of rising interest rates (8%), foreign exchange variance (8%) or commodity price volatility (6%). Leaders were twice as likely to cite competition (20%) as a risk than slow global growth (10%).
High-growth entrepreneurs are even more optimistic
As part of the EY Growth Barometer, the survey also measured 220 alumni of EY's widely-acclaimed Entrepreneur Of The Year program. Active for more than 30 years, the network has programs in more than 60 countries and 145 cities worldwide supporting high-growth entrepreneurs.
High-growth entrepreneurs are planning significantly higher growth rates than overall middle market leaders, with one in five planning to grow by 6%-10%, a further 20% by 11%-15% and yet a further one in five by 16%-25%. Nearly one in four (22%) high-growth entrepreneurs are planning current year growth of more than 26%. Additionally, almost two-thirds (61%) of this group plan increases in full-time staff and 9% plan increases in the use of contingent or gig economy workers.
Kimmitt says: "Middle market companies are the engines for global growth, representing nearly 99% of all enterprise and contributing nearly 45% to global GDP. But high-growth entrepreneurs are not only more ambitious in setting growth targets, but prioritize differently from other mid-market leaders and businesses. High-growth entrepreneurs are not fazed by the kinds of seismic shocks that Brexit and other geopolitical upheavals present. They are developing agile and flexible strategies to work with uncertainty as the new normal."
(Source: EY)
Heidrick & Struggles China recently conducted a survey of 151 senior executives at director level or above in mainland China to understand how extensively employer branding affects corporate success, and the factors that attract them to and retain them at an organization.
"Leaders of multinational corporations in China are finding it even more challenging to attract the leaders they need to thrive in today's operating environment – the 'new normal' which has been shaped by slower economic growth, higher costs, stricter regulations, the disruptive pressures of e-commerce and China's changing demographics," said Linda Zhang, Partner-in-charge of Heidrick & Struggles' Shanghai office. "Due to the shortage of skilled workers and high attrition rates, companies continue to cite talent as a top concern."
When asked to pick the three most crucial factors that make an organization a good place to work, respondents name 'high quality of senior leadership' (57%) and 'attractive corporate culture' (52%) higher than 'a competitive employment offer in terms of salary and benefits' (49%). Yet, good company brand and reputation, clear personal development and promotion path are seen as less important factors when it comes to the pull factors.
When asked what attracts them to a company, over 90% of the executives in the survey say that having senior leaders who are charismatic, inspiring, credible spokespeople is very important to their decision in joining a company. This aligns with the trend of 'CEOs as celebrities', with high-profile, charismatic executives such as Alibaba's Jack Ma and Baidu's Robin Li becoming synonymous with their company's image, and inspiring employees and customers alike.
"Our experience shows that the turnover rate of senior executives in China is roughly 12-15%. As the competition for talent heats up, companies cannot rely on remuneration as the only weapon for attracting and retaining best-in-class senior leaders," said George Huang, Head of China at Heidrick & Struggles. "Most senior level employees in China would like to follow an inspiring leader with a strategic vision, whether it is to achieve certain business or financial goals, or to disrupt an industry with an emerging technology. The satisfaction that comes from working with inspirational leaders that cultivate a strong company culture is increasingly influencing senior-level executives' employer decision."
When it comes to retention, the most important leadership qualities that encourage employees to stay are that senior leaders trust their staff, have a high level of transparency, and foster two-way communication between management and employees.
According to the study, when asked to pick the three most important factors for a company's structure and business model, recognition of high achievers (99%), a friendly and collaborative working environment (93%), and respect and encouragement for diverse thinking and new ideas (91%) are the key building blocks constituting a compelling corporate culture. These results are similar to those in the Asia Pacific Consumer Markets Report 2015 – a previous Heidrick & Struggles employer branding survey of senior executives across the Asia Pacific region – where 98% of respondents said that diversity of thinking in the workplace is the most important characteristic, while recognition of high achievers was in second place at 97%.
Roughly 31% of executives surveyed say they are currently looking for new job opportunities and hope to leave within 12 to 18 months; an additional 29% say they may leave within the next two years if better opportunities are available. This finding suggests that employees in China may have less patience with a suboptimal status quo at work than employees elsewhere in Asia. In the previous Asia Pacific survey, just 30% said they were considering leaving their employers, and only just over half of this group hoped to make a move within 18 months.
The survey included senior executives from a wide range of industries at multinational companies in China, including industrial (42%), consumer (19%), healthcare (16%), technology (10%), financial services (5%), professional services (3%), marketing services (2%), education/not-for-profit (1%), and conglomerate (2%). All respondents came from companies with more than 5,000 employees globally, and 79% have more than 1,000 employees in China. For a majority, China accounts for more than 10% of their company's global revenue.
(Source: Heidrick & Struggles)
Finance executives are less optimistic about the economy entering the second quarter of 2017 than they were entering 2017, according to the AFP April 2017 Corporate Cash Indicators.
In the latest CCI, a quarterly survey of corporate treasury and finance executives conducted by the Association for Financial Professionals, US businesses continued to build their cash reserves in the first quarter of 2017. This was not what they anticipated at the beginning of the year. Last quarter, finance executives suggested that they were, for the first time in many months, willing to deploy cash in Q1. However, new numbers reveal they did otherwise. The quarter-over-quarter index of +15, which measures actual changes in cash balances during the quarter, contrasts with the anticipated change for Q1 of -7 that was reported last quarter. The +15 reading was just one point lower than a year ago. The year-over-year indicator increased by 6 points to +16, showing that companies have continued to accumulate cash over the last 12 months.
The forward-looking indicator, measuring the expected change of cash holdings during the second quarter of 2017, increased 10 points to a reading of +3, signalling a continued softening in finance professionals' business confidence through the spring and an anticipated increase in cash holdings in the coming quarter. This was four points below its reading from a year ago.
Meanwhile, the indicator for short-term investment aggressiveness gained one point in the last quarter moving from -2 to -1, continuing to signal a more conservative posture with cash and short-term investments. These results are based on 212 responses.
In early 2017, for the first time in many months, finance professionals displayed a new sense of optimism about the economy, which AFP attributed to a new president promising a pro-business agenda. However, continued gridlock in Washington, plus heightened geopolitical risk in Syria and North Korea likely dampened the mood of finance executives.
"The rapid change in finance executives' outlook comes as little surprise given the sudden rise in economic and political uncertainty," said Jim Kaitz, president and chief executive of AFP. "Corporate treasury and finance executives are responding quickly, and prudently, to the new environment."
(Source: Association for Financial Professionals)
Commercial real estate industry executives are optimistic about Q1 market conditions while taking a "wait and see" approach to new Administration policies and potential tax reform, according to The Real Estate Roundtable's Q1 2017 Economic Sentiment Index released this week.
"The Trump Administration and a new Congress are aiming to unshackle the economy by focusing on growth-oriented policies," said Roundtable CEO and President Jeffrey D. DeBoer. "As our Q1 Sentiment Index shows, leaders in commercial real estate are cautiously optimistic about what policy changes may bring, yet concerned about any potential unintended consequences that could threaten real estate's vast contributions to the US economy."
The Roundtable's Q1 2017 Sentiment Index registered at 55 — seven points up from the last quarter. [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.] This quarter's Current-Conditions Index of 55 increased four points from the previous quarter, and rose 1 point compared to the Q1 2016 score of 54. However, this quarter's Future-Conditions Index of 55 rose nine points from the previous quarter and is up 10 points compared to the same time one year ago, when it registered at 45.
The report's Topline Findings include:
- The Q1 Sentiment Index came in at 55, a seven point uptick from pre-election Q4. Reacting to the new administration in Washington, many are optimistic about potential market opportunities and the US economy. Mitigating this optimism is concern around potential tax policy reforms.
- While optimism has been the most common reaction to the new Administration, many responders are employing a 'wait and see' approach. Most expect changes in the real estate industry as a result of the policies of the new Administration.
- Despite previous concerns about asset values nearing peak pricing, many feel that pricing has stabilized. Industrial properties are perceived as well priced while many are reporting a lessening of values for multifamily properties in gateway cities.
- Foreign capital continues to seek real estate investment opportunities in the US market. As a result, access to equity capital is plentiful. Construction lending remains challenging to secure, but for high quality, stabilized assets, financing is available with competitive terms. Asset pricing and debt constraints are concerning, general sentiment about the US market is neutral to positive. Gateway markets have been identified as past peak pricing but many secondary and tertiary markets are intriguing for value-add investors.
Although 36% of survey participants said asset prices increased "somewhat higher" compared to one year ago, 43% of respondents said they expect generally flat valuations a year from now — reflecting the view that many believe pricing has stabilized for certain property types. Some also noted that inflows of private capital currently favor equity to debt, dependent on the quality of the property.
DeBoer added: "The Real Estate Roundtable and its members want to advance policies that will spur job creation and economic growth, always guided first by research, data and reasoned analysis that inform policymakers' understanding of all issues, particularly when making choices that affect real estate. We hope our information will assist the policy discussion as lawmakers continue to charge forward on proposals that could have an enormous impact on our nation's growth, prosperity and national security."
Data for the Q1 survey was gathered in January by Chicago-based FPL Associates on The Roundtable's behalf.
(Source: The Real Estate Roundtable)
Over the past year, and in recent news, we’ve seen a consensus that the pay of corporate executives is ‘too high’, and investors, fund managers and shareholders are increasingly ready to take firm action against plans to boost the remuneration of top bosses.
More recently, David Cumming, Head of Equities at Standard Life, a UK investment firm, said his company "could not justify" pay going any higher. He told the BBC that investors must do more to signal their unhappiness.
"We continue to see too many proposals that would bring a substantial increase [in pay], and we have to signal that we are not happy with that,” he said.
This week, Finance Monthly’s Your Thoughts looks closer at this topic, and hears the views of Martin Pratt, Partner in the Employment Law Team at Gordon Dadds, surrounding the matter.
The High Pay Centre think-tank calculated that the median FTSE 100 CEO had managed to clock up the £28,200 2017 UK average earnings by lunchtime on Wednesday 4th January 2017. A week later Blackrock wrote to public company chiefs threatening to veto excessive pay or pension proposals. This month, top Standard Life fund manager David Cumming said that his firm “could not justify” top executive pay going any higher. Theresa May’s government has issued a Green Paper with ideas to curb it.
That there is a problem with unjustifiable pay inequality between those at the top and those at the bottom of our largest companies, now seems widely accepted. What is not so widely agreed upon is what to do about it.
When launching her campaign for the Conservative Party leadership last July, Theresa May put forward one surprisingly, and ironically, European proposal to deal with the issue - workers representation on boards.
The proposal for workers in the boardroom, German style, was notably absent from November’s Green Paper on the topic. Another proposal touted at May’s leadership launch, binding shareholder votes on remuneration, was actually introduced by the coalition in 2013 for listed companies, with a requirement for a vote on pay policies every three years. The Green Paper suggests that since 2013, not a single FTSE 100 remuneration policy has been rejected by shareholders. That is not a great advert for shareholder activism. Perhaps shareholders have not, thus far, agreed with the consensus that executive pay is problematic.
The comments by Blackrock and others mean executive pay proposals may not get an easy ride from institutional investors next time. But that is not certain. The Green Paper makes proposals making shareholder oversight more meaningful, but the fragmented membership of listed companies makes concerted shareholder action to curb pay difficult.
The Green Paper makes much of a transparency requirement – forcing companies to publish the differential between their highest and lowest paid employees. This “name and shame” approach seems to rely upon the idea that companies will be so embarrassed by the pay gap between top and bottom that they will do something about it. That is, at best, a speculative assumption. At worst it will stoke the fires of resentment and negativity about corporate “fat cats” without actually dealing with the underlying problem.
All of the policy solutions put forward thus far are tinkering around the edges. If the government genuinely believes there to be a problem, then radical measures are needed to address it. The traditional method of ensuring that the highly paid contribute to the common good is via taxation. That is an anathema to any Conservative administration, but it would at least have the benefit of adding to public coffers, which simply putting an upper cap on salaries, as proposed by Labour, would not.
Or perhaps we are approaching this from the wrong angle. Instead of pushing down the salaries of the highest paid, more attention could be paid to pushing up those of the lowest?
We would also love to hear Your Thoughts on this, so feel free to comment below and tell us what you think!
