Valuing a company brand demands a complex mix of art and science that can produce wildly differing estimates, yet the bottom line is undoubtedly affected

In 1998 Larry Page and Serge Brin changed the name of their creation – now the world’s leading search engine – from the not-so-catchy BackRub to the rather more memorable Google. With the power of hindsight it’s easy to see what a smart move that was, and arguably one that helped the brand become a household name worth billions of dollars.

It’s hard to imagine a brand called BackRub commanding such a price tag, or becoming a verb as ‘google’ has. But then again, just 16 years ago, google just meant the number 10 raised to the power 100. Today, Interbrand and Brand Finance’s 2014 surveys estimate Google’s value significantly above that, at $107.43bn and $68.6bn respectively.

The example illustrates the pace of change in brand names and their fluctuating values in today’s fast-moving business world. But despite the growing importance of brand equity – the value of a brand – a globally standardised approach to measuring brand value has yet to be developed.


That hasn’t stopped the proliferation of brand value surveys, none of which fully reveals the metrics behind its brand value calculations. However, despite the disparities, the studies do agree on one ranking – that of Apple at number one, although valuations differ widely.

‘Apple and Google’s meteoric rise to more than $100bn is truly a testament to the power of brand building,’ Jez Frampton, Interbrand’s global chief executive officer, said last October when announcing the 2014 results of his company’s survey.

Brand valuation is a complicated art rather than an established science, although certain methodologies are now widely accepted when it comes to measuring, comparing and contrasting brand values over the years.

When identifying the 100 most valuable brands each year, Interbrand says it examines three key aspects: financial performance, influence on customer choice, and brand contribution to earnings.

Brand Finance applies one of three different measurements: market approach, costs approach or income approach, but typically uses the latter, which estimates the value of future income attributable to the brand and expresses this as a net present value.


With so much value attached to a brand, why do companies choose to change their names? One of the biggest name changes of recent times came at the end of last year, when BSkyB, as British Sky Boardcasting was commonly known, announced it was losing ‘British’ and ‘Broadcasting’ from its name and rebranding simply as Sky (see box). BSkyB was itself a product of the merger of Sky Television and British Satellite Broadcasting 25 years ago.

Jeremy Darroch, who remained CEO after the rebranding, said that the name change completed the company’s transformation into a pan-European, paid-for TV business following the £6.88bn buyout of BSkyB’s sister companies in Germany and Italy.

There must, of course, be a clear case for a name change, with mergers and takeovers being the most common and understandable driver. Sky says it is dropped the word ‘British’ to reflect its pan-European target market and the word ‘Broadcasting’ to reflect its migration from a pure TV company to a multimedia one.

‘During a merger, brand is crucial to ensure confidence and support among existing employees and clients,’ says Matt Morris, director of Carr Consulting & Communications, who worked on the 2013 rebrand of Quilter and Cheviot Asset Management as Quilter Cheviot. ‘They want to know the firms are stable. It also allows the firm to instil a new and fresh image of what the company must stand for.’

Disasters, particularly public relations ones, can also trigger a rebrand, helping a company to distance itself from bad publicity. But rebranding doesn’t guarantee the business will be saved.

The most well-known PR gaffe was made by Gerry Ratner, founder of jewellery retailer Ratners, who described his own store’s goods as ‘total crap’ to a 5,000-strong business audience at an Institute of Directors conference in 1991.

Ratner’s description wiped £500m off the value of the company, forced stores to close and led to his summary dismissal from the board before the chain was rebranded as Signet Group.


People’s emotions and perceptions are one of the most important factors influencing brand values and turn what might otherwise be a science into an art. Brands are vulnerable to fluctuations in value because they depend so heavily on public opinion.

For example, in brand value surveys when consumers are asked to price a particular car, they may place different values on, say, Volkswagen, Ford and Mercedes marques, even though the same car is used in the survey with just the badges changed on the bonnet. In each case, the brand is seen to be worth around 10% of the retail value of the car.

‘It’s a highly emotional decision either in consumer or B2B brands,’ says Paul Hague, founder of B2B International, a business research company.

The decline in popularity of Nokia is a little more complex but ultimately boils down to emotion. Nokia failed largely because it underestimated the importance of software on smartphones, but once the business had started to slide downwards, perception took over. In 2009 Nokia was considered one of the most valuable brands in the world, claiming the fifth spot in the Interbrand survey with a value of $35bn. In its 2014 survey the Finnish brand had fallen to 98th position with a value of $4.1bn

Like a see-saw, as Nokia’s brand value went down, so Apple’s rose. In 2009 Apple sat at number 20 in the survey with a brand value of $15.4bn. Five years on, the company is considered the world’s most valuable brand, worth $118.9bn, according to Interbrand’s 2014 study.

To truly assess the value of a brand, a company has to be sold, and buyers and sellers will inevitably differ in their estimations of value placed on a brand for obvious reasons.

‘One of the challenges boards face today is the faster pace of change made possible by new media. Technology stocks are very vulnerable to that change. But cars, for example, are too. In the past those transient changes were slower and you could handle brands better,’ Hague says.

Brands today aren’t as resilient as they once were. Consumers are less forgiving and, ironically enough for technology businesses, technological advances and mass media mean that shoppers are much better informed, more quickly. That applies to business-to-business brands as much as to consumer brands.

Even though there are difficulties in measuring brands accurately since the value of a brand is merely a promise delivered and that can change overnight, it is clear that brand value can have a major impact on a company, and may even ultimately sound its death knell.


Trends in brand names come and go. In recent years one-word names have become popular – Google, Apple, Amazon, Nike, eBay, Orange, and so on. It’s a trend that is still going strong, with the need for a snappy URL likely to be one of the drivers. Of the top 100 global brands, 65 have one-word names, 16 use acronyms and the rest have two-word brand names, such as Land Rover or Harley-Davidson.

The trend isn’t exclusive to consumer brands. A few years ago, Big Four audit firm PricewaterhouseCoopers became PwC, and more recently Ernst & Young rebranded as EY. Companies are increasingly dropping geographical names too as they target global markets. British Airways became BA, while British Sky Broadcasting recently dropped both ‘British’ and ‘Broadcasting’ from its name to become simply Sky.

Meaning doesn’t necessarily figure in the search for a new name; connotation or multilingual ‘pronounceability’ may be more important. Accenture, for example, is currently 44th among the top 100 brand names and worth $9.9bn.

Michelle Perry, journalist

This article was first published in the June 2015 Ireland edition of Accounting and Business magazine.


Boxing clever

Adrian Marsh, CFO of packaging business DS Smith, explains some of the challenges that are facing his industry and how the business is primed for growth

It has been a busy first year for Adrian Marsh as chief financial officer of packaging group DS Smith. The former head of tax at Tesco has had to significantly build up the DS Smith finance function as well as finance a fast-growth agenda at the FTSE 250 business.
Since 2010 it has ballooned from a fairly small Anglo-French consumer goods packaging company with a share price of 100 pence to a fast-growing group with a £2.7bn market capitalisation.
In its latest six-monthly results to October 2014, DS Smith reported that its pretax profits had leapt 45% to £123m on revenue of £1.97bn. Although revenue was down slightly, the share price rose more than 4% following the announcement in early December. At the time of writing, the share price was up 1.44% to 309 pence.
Marsh’s first-year contribution to the company’s successful set of results can be found in the group’s strong cash position, with £159m on the balance sheet at the end of October, up from £116m six months earlier. He has also cut net debt by £133m to £694m.
CEO Miles Roberts noted his CFO’s efforts in his results statement in December: ‘We have continued to make good progress. This has translated into strong financial performance, with a particularly good progression on margins and returns as well as excellent cashflow generation.’
DS Smith, whose clients include fast-moving consumer goods companies such as Nestlé, Unilever and Reckitt Benckiser, has been on the M&A trail since 2010 (see box). Its recent purchase of Spanish corrugated-board producer Andopack last October gave it a direct market position in Spain, which allows it to continue to grow and leverage its scale. And this is Marsh’s primary focus for the year ahead.

‘We want to create a business that can genuinely compete globally. It starts with Europe and we need to consolidate that first. There’s a big M&A and growth agenda for the next year or so,’ he explains.
In order to grow, Marsh has to make sure the company is generating cash to invest as well as return to shareholders. ‘My burning priority is putting in place the capability for growth. We have to show how we can grow fast again,’ he says. He is on course to achieve his goals if the latest results are anything to go by.
Marsh has also shown how seamlessly finance executives can move between industries and positions, and not just prosper but also make a huge impact. Despite moving from being head of tax at a fast-moving, high-margin FTSE 100 supermarket like Tesco to the finance head of a low-margin FTSE 250 manufacturing company, Marsh has embraced the change.
He says that in finance you have the benefit of being ‘industry agnostic’, although it is, of course, critical that you’re interested in the sector, which he very much is.
‘It’s a very interesting industry. It’s more than I could have imagined. For me it had the level of complexity needed and it’s growing and there is a growth agenda. There’s a lot of change.
‘I know from a competence level that there will be nothing that I can’t do, but the change to CFO level is very significant – things like how to interact with the board, shareholders, investors and communicating financial news. At Tesco, I was dealing with more money but it was part of a finance structure already in place.’
He adds that ‘in low-margin manufacturing, finance can do a lot’ – as he is currently demonstrating.
Marsh puts some of his successes down to his ACCA Qualification. ‘ACCA was invaluable in giving me a firm foundation in all aspects of finance and being a member was extremely important in my early career, giving me the confidence to move into different finance roles.’
In the past, packaging was as much about selling the paper as it was about creating the package, which is why some European packaging companies like Mardi and Smurfit Kappa still have ‘struggling’ mills attached to them.

But today, fast-growing consumer goods companies – the main clients of packaging companies – are driving the change in the industry because they want to cut costs and complexity, and drive out waste from their supply chain. Recycled retail-ready packaging is where the future lies, Marsh says.
He adds: ‘Historically, boxes were sold by weight. But now we try to work with companies to use packaging to reduce environmental footprint and enhance sales in stores.’
For this reason, DS Smith has a recycling business that collects used paper and corrugated cardboard, which its paper manufacturing facilities turn into corrugated packaging. It is also why the announcement in December of the completion of the company’s design and manufacture division – which develops certain types of plastic packaging tailored to clients’ needs – is so vital to future growth and success.
Although DS Smith has its sights set on Turkey, North Africa and the Middle East for future growth, Europe is the company’s most important market. Talk of a possible UK departure from the European Union understandably makes him nervous.
‘Yes, we want to remain in the EU. The EU offers the UK economies of scale, ability to transfer knowledge and so on. It’s the only way the UK can compete on a global stage. Exiting the EU would be the worst possible outcome for the UK to pursue.’
He argues that the negative impact that a UK exit from the EU would have on DS Smith’s outlook would be ‘the same for a lot of companies. It’s a very political agenda. But from a business agenda, Europe is very important to us.’
With industry forecasts putting growth in the European cardboard sector at just 1% a year up to 2016, and with uncertainty around a growing number of political and economic developments, DS Smith is nonetheless looking to widen its client offering and build up its cash pile.
But with Marsh’s strict financial discipline, savvy finance-raising skills and cautious debt outlook, the company has in place a strong top team to weather the economic headwinds.


Marsh has three tips for finance professionals: ‘When I was taking this job, the best advice I was given was to be absolutely certain that I would get on with the CEO and the board. If you don’t, then it’ll be a difficult job and you’ll be ineffective.
‘My second tip is you only ever have one reputation and once it’s lost it’s irrecoverable. Be careful what you stand for. It’s the only thing you can never recover.
‘And finally, coaching has been a great help to me. The transition to becoming a group CFO is not just about the professional, it’s about the personal as well. It’s a bit of a cliché but the past year has been a whole personal development journey for me.’


€1.6bn (£1.2bn) tie-up with Sweden’s SCA Group’s packaging operations brings together the second and third-largest packaging businesses in Europe’s €30bn market for cardboard packaging. DS Smith’s aim is to position itself as Europe’s leading supplier of recycled packaging for consumer goods.

July 2014
The company acquires the 50% of recycling business Italmaceri that it didn’t already own. Italmaceri operates in northern Italy, with annual volumes of around 500,000 tonnes.

September 2014
Kaplast, an injection-moulding business in Croatia, is acquired to expand the returnable transit packaging element of DS Smith’s plastics business.

November 2014
DS Smith purchases Andopack, a corrugated board manufacturer in Spain, for £35m. The business operates from a site with substantial opportunity to grow the business by serving pan-European customers based in the region.

December 2014
DS Smith (via Kaplamin Ambalaj, in which it has a minority interest) signs exclusive letter of intent to buy Cukurova’s majority shareholding in Kaplamin Ambalaj and other packaging assets in Turkey and Greece. The businesses have an annual turnover of around €160m. Discussions are at a preliminary stage and any acquisition remains subject to due diligence.

Michelle Perry, journalist

Will the Justice Ministry try to limit the scope of the Bribery Act?

Businesses will be left even more confused by any attempts to dilute the act, say experts

By Michelle Perry | Published 11:53, 21 March 11

Justice MGuidance on the Bribery Act being drawn up by the Ministry of Justice could be released this week ahead of, or to coincide with, the Budget on 23 March.

Cynics may question whether justice minister Kenneth Clarke’s timing is an attempt to bury the news amid the cacophony of the Budget. But more worrying perhaps could be Clarke’s attempt to “clarify” the act and whether it could prove more confusing for business.

An anti-fraud expert who is close to the drafting of the guidance recently confided in me that he was worried that instead of providing clarity for businesses concerned about act’s reach, the MoJ’s guidance will add to the confusion.

The act makes anyone in a business criminally liable if they bribe to win or retain business anywhere in the world. Those that fail to comply with the law could be hit with big fines or a prison sentence. So it is understandable that business leaders want a guiding hand to allay their fears. However guidance should not seek to reinterpret law.

What the guidance is said to “clarify” is that foreign companies listed on the London stock market but with no other UK presence should not be liable for prosecution under the Bribery Act. The act however states that an offence of failing to prevent bribery applies to all corporate entities carrying on all or part of a business in the UK.

My contact confirmed that we can expect to see an exemption for foreign businesses with a UK listing thanks to the powers of a very influential business lobby. Draft wording, seen by the Guardian last week, suggests the same.

If that is the case the justice minister’s guidance will redefine the scope of the act — passed by parliament under the Labour government last year – which was specifically designed to be wide-ranging to allow courts and prosecutors a wide berth in corporate bribery cases.

Last-minute clarifications to the act concern anti-fraud experts and prosecutors alike that Clarke is trying to reign in the act using departmental guidance to reinterpret primary legislation. However guidance does not have the force of law and only prosecutors and courts can interpret the law.

Companies have wanted more certainty, but it’s unlikely they’ll get it through the MoJ’s guidance.

To be fair most British companies have taken measures to review their policies and practices to ensure they comply with the law. Over time clearer understanding of how far prosecutors will go and how courts will decide with come through case law.

“Until then companies have to take a look at themselves and how they operate and mitigate any risks” of falling foul of the act.

The UK has a poor history of prosecutions in corporate bribery cases and has been criticised by the OECD for its lacklustre approach to dealing with corruption in business. If the guidance attempts to dilute the law it’s unlikely the UK will gain any plaudits for anti-corruption measures.

A Budget for making things, not for making things up

“Let it be heard from Shanghai to Sao Paulo, Britain is open for business,” Osborne rallies

By Michelle Perry | Published 15:49, 23 March 11

BudgetPredictions from tax experts I’ve spoken to in recent weeks that the Budget would be big on rhetoric were borne out on Wednesday when the chancellor delivered his second Budget speech.

Grandiose language coupled with big statements such as “Let it be heard from Shanghai to Sao Paulo, Britain is open for business” made for a rousing reception among the coalition’s ranks. But much of what he said had already been pre-announced.

Apart from a few sweeteners to dull the pain of the public spending cuts, the Budget’s focus was on pro-growth, not giveaways. George Osborne voiced his concerns – echoed by business leaders – that the UK’s competitiveness was slipping away because of its complex tax system and burdensome regulation.

Setting the picture he then signalled his intent not only to curb the perceived outflow of multinationals from the British Isles, but also to increase foreign investment. All good, so far.

The chancellor pledged “not to increase taxes but to simplify them,” announcing a reduction in the headline rate of corporate tax by 2 percent, 1 percent more than that forecast.

“It is time we took this historic step to simplify our tax system and make it fit for the modern age,” he said.

Chris Sanger, global head of tax policy at Ernst & Young, says Osborne “subtly changed his mantra today”, arguing that he was “sending exactly the right message to investors, wealth creators and those with aspirations”.

But as he gave with one hand, he snatched away with the other by offsetting the benefits of the corporate tax rate reduction to the banking sector by increasing the permanent bank levy this year.

Already experts are suggesting that his words may not be quite what they seem.

Matthew Barling, banking tax partner at PwC called the move “somewhat surprising”, saying it would “resulted in four different rates … which is representative of the complexity of tax rules the sector now faces”.

Not so simple after all.

Chas Roy Chowdhury, head of tax at ACCA, goes even further in questioning Osborne’s “balancing act”, wondering if “there could be a shaky future ahead”.

In which case, it remains to be seen whether Osborne’s Budget is, after all, for “making things, not for making things up”.

Bribery Act could deliver an unpleasant surprise

Foreign companies are not exempt from Bribery Act despite government guidance suggesting so

By Michelle Perry | Published 16:05, 30 March 11

BriberyOk so I was wrong. The government’s long-delayed guidance didn’t get buried in the Budget last week but was published today – a week after the Budget.

However I was correct in predicting that guidance by the justice secretary Kenneth Clarke has tried to water down the new anti-corruption laws, or at least give the impression that he has done so with some vague wording.

The Ministry of Justice guidance states that the government would not expect “ the mere fact” that a company’s securities were listed in London, in itself, “to qualify that company as carrying on a business or part of a business”.

The act states that any company carrying on a business or part of a business in the UK falls under the remit of the act and a listing typically constitutes doing business. If listing one’s securities doesn’t constitute doing business then why bother in the first place? If the answer is: raising one’s profile. Then that is arguably doing business as well or is ultimately a means to doing future business.

Now I’m pretty sure all sorts of experts in and out of government have gone over the wording with a fine toothed comb to ensure that it is sufficiently vague in parts, so that it doesn’t scare off foreign companies or investors from the UK, but also doesn’t recast primary legislation.

What the guidance succeeds in doing however is adding to confusion among corporates that were hoping for clarity in the guidance; which ironically defeats one of the main purposes of delaying the guidance.

One anti-fraud expert called me from South Africa today to say that companies there were discussing the act’s scope to find out if a listing in the UK would pull them into the act’s remit.

“The Ministry of Justice is saying one thing and the SFO is saying another. It’s confusing,” said my contact.

Richard Alderman, director of the Serious Fraud Office, however today assured me that foreign companies or their subsidiaries won’t be exempt because it is rare – if at all possible – that a company ever has a “mere” listing without carrying out other business activities in the UK.

To reiterate the guidance does not have the force of law. The SFO will probing companies, irrespective of provenance, if it suspects bribery.

Or as Alderman puts it: “Don’t rely on a loose interpretation of the act as you might get an unpleasant surprise.”

The elephant in the room

The “evolution of the corporate reporting structure is too slow”

By Michelle Perry | Published 12:45, 20 May 11

ElephantIn more than 10 years that I have been writing about finance and corporate reporting the one theme that has consistently cropped up is the need to reform the corporate reporting system.

Indeed David Philips, senior corporate reporting partner in the assurance practice at PwC and a contributor to a new report out this week, has been one of the most vocal in the profession on the need for greater, faster change in financial and non-financial reporting.

Back in 2001 Phillips called for breathing space from regulators to allow companies to experiment with different reporting models. He told me: “Forward thinking companies are beginning to see information as delivering competitive advantage. Beyond financial performance, companies are communicating information on their market place, their strategy and the intangibles and other non-financial data that are lead indicators of the future performance of the business. This information simply does not exist in traditional financial statements.”

The report “Tomorrow’s Corporate Reporting” compiled by PwC, CIMA and think tank Tomorrow’s company, acknowledges that the “evolution of the CRS [corporate reporting structure] is too slow”.

Professor Mervyn E King, deputy chairman of the International Integrated Reporting Committee (IIRC) set up last July, says in the report: “The world has accepted that people, planet and profit are inextricably intertwined.

“No company in developing its strategy can overlook financial, human, natural, social, manufactured and technological capital aspects.”

Although the report to re-engage in the debate on the future of corporate reporting is welcomed, it doesn’t go far enough in calling for a clear timeframe and offering recommendations. Until someone is prepared to put their head above the parapet and demand change I fear little will happen for another decade.

That said however, I was heartened this week on the news that Puma, the sportswear company, was publishing a pioneering environmental profit and loss account. PUMA’s overall environmental impact was valued at ‚¬94.4m (£82.7m) for 2010, split almost equally between greenhouse gas emissions and water use. The financial impact of gas emissions, calculated by PwC, totalled ‚¬47m, while water use, calculated by Trucost, was valued at ‚¬47.4m.

This is exactly the kind of action that is needed in this area. Perhaps only when the issue is commercialised, as Puma’s initiative hopefully will, will other companies follow suit.

Legislation fails to dent overseas appetite

With implementation of the Bribery Act less than a month away companies are still not fully compliant

By Michelle Perry | Published 15:48, 06 June 11

LegislationWith less than a month before the UK’s new anti-corruption laws take effect a new study finds that the majority of British businesses aren’t avoiding markets where corruption is reputedly endemic.

While the majority of UK plc say bribery and corruption remain part of doing business in some countries, most companies continue to operate in such places, according to a KPMG International survey. But they are stepping up internal controls, due diligence and training to avoid falling foul of the new Bribery Act.

Brent McDaniel, head of KPMG’s UK anti-bribery and corruption practice, says: “Rather than sidestep certain markets, our survey finds that many leading companies have implemented risk mitigation programmes … .”

Although heartening that the new legislation deemed to be the toughest in the world hasn’t put companies off doing business overseas, it is nonetheless worrying that the study also found significant shortcomings in compliance with the Bribery Act 2010.

One in two companies polled in the study did not have a committee responsible for overseeing anti-bribery and corruption compliance and a third do not carry out anti-bribery and corruption risk assessments.

Still more worrying was the finding that 32 percent of UK executives still didn’t understand the new legislation’s requirements.

In this tight market and with the UK recovery slow dimming, doing the right thing will become even more difficult as businesses face increased investor demands for a good return.

What the survey reveals is that a large portion of business still aren’t prepared for the legislation which takes effect on 1 July. But what companies should count on is that the UK Bribery Act has teeth and large ones too. Regulators will come down hard on those where fraud and corruption are suspected if only to set a clear precedent for the future.

You may think compliance a costly chore in the short term but in the long term it could prove the difference between jail time and a clear reputation.

Government could do more

Government has shown a lack of leadership in dealing with rioters and their impact on business

By Michelle Perry | Published 12:24, 12 August 11

GovtCompanies this week broadly welcomed prime minister David Cameron’s short term plan – albeit a delayed reaction from the country’s leader – to boost business in the wake of the riots across London. But many business groups want the prime minister’s coalition government to be clearer on the long term plan for growth.

The riots may have rightly distracted many this week from the government’s vague business strategy but not for long. The British Retail Consortium says the short-term help for affected businesses and high streets needs to be followed up by a long-term plan of action to revitalise urban shopping areas.

BRC Director General Stephen Robertson biggest concern is that “otherwise successful retailers are pushed into insolvency by the events of this week”.

“The retail sector has been battling difficult trading conditions for much of this year and sadly for some shops these attacks will be the final straw. Even where shops do manage to stay in business it is likely not all jobs will survive,” Roberston added.

Business leaders have however praised the temporary suspension of business rates for affected premises, but said the government should go further by agreeing to a national insurance payments holiday for riot-hit retailers.

But there’s clearly more the government could do to help business even if these riots had never occurred. And indeed more pertinently the social upheaval that occurred this week in many major cities may arguably never have escalated to the extent it did had the government taken more robust measures to help businesses grow and hire more people, particularly young people.

How about a temporary or even permanent drop in VAT back down to the previous rate of 17.5 percent? That would help both embattled retailers and cash-strapped consumers, and show clear support.

This should be a stark warning to the government that businesses, large and small, won’t tolerate further ambiguity on economic recovery.

The Association of British Insurers revised its estimated figure of claims likely to be paid out by the insurance industry to be in excess of £200 million. At a time of such great uncertainty businesses need a strong leader; a trait that – despite Cameron’s grand words in his marathon speech to an emergency session of parliament on Thursday – has been severely lacking in this government.

The lack of leadership was further reinforced on Friday when Sir Hugh Orde, president of the Association of Chief Police Officers and one of Britain’s most senior police officers, defended forces’ handling of the riots, following Cameron’s criticisim of the police, and dismissed the role of politicians as an “irrelevance” in bringing them under control.

A cynical ploy for business?

Just 10 percent of 468 local authorities outsourcing significantly, says Capita CEO Paul Pindar

By Michelle Perry | Published 16:30, 24 August 11

cynicalOn first glance, Paul Pindar’s comments to the FT this week about the government’s need to outsource more is a bit like Rupert Murdoch telling us we should all watch more Sky TV because we can learn a lot.

You are forgiven for thinking the statement a cynical ploy to get more business. Indeed the emotive language the Capita boss used in the interview (“criminal” cuts to frontline services) doesn’t help put forward his real argument; that of saving taxpayers money.

Worse still, this from a man who earns a tidy sum of around £900,000 annually, makes the comments seem even more vacuous.

But delve further and he may have a valid point.

He told the FT that 90 percent of the UK’s 500,000 civil servants were performing back and mid-office functions, which could easily be better managed by the private sector.

If this is true, and it quite likely is, then outsourcing to the private sector (not necessarily Capita) would fit snugly with prime minister David Cameron’s push to fuel the private sector to pick up the slack from the swingeing cuts about to take hold of the public sector.

With just 10 per cent of 468 local authorities outsourcing significantly, as Pindar says, it does indeed leave much room for expansion.

But here’s the rub outsourcing can quite easily go horribly wrong. There’s a string of cases as long as my arm that I could cite here where public sector outsourcing contracts have failed abysmally; costing – not saving – the taxpayer a heap of money. But I’ll mention just one: EDS.

In contrast, a well negotiated, well-executed outsourcing contact (and experience should have taught us some lessons in the past decade) can indeed save billions of pounds as Pindar states.

So instead of simply dismissing the Capita boss’s comments as touting for business, maybe the coalition government should review its stance on outsourcing to avoid further angering the British taxpayer by cutting police forces, closing libraries and youth centres and the potential for future riots.

Audit committees: Already heavily loaded

Proposals are afoot to increase the responsibilities of audit committees

By Michelle Perry | Published 15:58, 02 September 11

AuditThe news this week that the Financial Reporting Council plans to investigate how companies report strategic risks is good news for all stakeholders.

However suggestions that audit committees will have to disclose whether they came across any inaccurate or inconsistent information in a company’s annual report and not solely its financial statements as is currently the case is worrying.

Non-executive directors that I have spoken to in recent months and especially chairmen of audit committees broadly welcome proposals (from the FRC and EC) that allow them to disclose more without infringing on commercial sensitivities. But they’ve all voiced concerns about adding to their responsibilities.

They have some support in the Institute of Internal Auditors. Jackie Cain, IIA policy director, said that more work will need to be done to ensure that audit committees are equipped to take on the additional responsibility for risk reporting being recommended by the FRC.

Cain says:  “Our most recent research suggests that some audit committees’ handle on the risks facing their company is not as firm as it should be.  Clearly, if they are to take on additional responsibilities for risk reporting, they will need additional support as well as clear guidelines.”

The FRC anticipated these concerns. The regulator highlighted current fears about a shift in responsibilities for audit committees in its report: Boards and Risk –  A summary of discussions with companies, investors and advisers.

“The main argument put forward by those participants who favoured separate committees to address key risks was that audit committees were already heavily loaded and did not have the time to address risk properly, and that a different set of skills may be needed,” the report said.

In its report the governance watchdog attempts to pre-empt concerns with suggestions of how to overcome potential stumbling blocks such as separating audit and risk committees, holding joint meetings or inviting other board members to participate in audit committee meetings. But it’s not so much the logistics that should be the main concern.

What if non execs overlook a particular risk that is later exposed? Not only could it damage the share price but it could also mean the company falls foul of governance rules? Won’t shareholders and other stakeholders want to hold the non execs as well as the board responsible for such a glaring oversight?

If audit committees are to take on increased responsibility won’t the time they dedicate to the job increase significantly and therefore shouldn’t their pay rise to reflect the increased responsibilities?

And if these proposals become part of governance will non execs remain non-executive at all? Will we have to come up with a totally new term for those that are the anchor to the executive board?