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.

Good news, slightly tainted

If we don’t change the UK’s business culture, talented women will not thrive and we shall be poorer for it

By Michelle Perry | Published 15:31, 11 October 11

Good newsThe UK’s governance watchdog today announced that it would force public companies to report annually on the make-up of their boards, including the male-female ratio.

Baroness Hogg, chairman of the Financial Reporting Council, made it clear that she hoped the amendment to UK governance code, which will take effect from next year, would stave off the threat of a legal requirement in the form of a quota.

Hogg said: “We believe this gives a further opportunity to show that Britain’s ‘comply or explain’, Code-based approach can deliver a flexible and rapid response and is therefore preferable to detailed legal regulation, and we urge companies to demonstrate this as quickly as possible.”

Hogg is of course not the only woman against quotas. One of the few former female finance chiefs of the FTSE100, who had held several board positions when she was a FTSE CFO, recently told me in private that she would not have liked to have thought that her appointments came because of a quota, rather than being based on her reputation, achievements, skills and business acumen.

Another woman against quotas is Maxine Benson, co-founder of everywoman, who tells me: “While mandatory quotas have their heart in the right place, they will not solve the root of the problem as to why more women are not advancing into senior roles and onto boards.”

The FRC’s announcement comes on the eve of a House of Commons event tomorrow, when Lord Davies is expected to announce that nearly a third of all FTSE 100 appointments have gone to women since the “Women on Boards” report was published in February.

I’m pleased about the speed with which FTSE 100 boards have moved to recruit women- it’s worth noting though that the majority of FTSE250 boards remain male dominated. But this some pleasure is ironically tinged with disappointment.

It has taken just over half a year to secure nearly a third of all FTSE 100 appointments for women and yet many reputable women have for years been trying to gain a board position within the FTSE index to no avail.

The appointments further disprove previous claims that there simply weren’t enough women with the necessary qualifications to sit on the UK’s top corporate boards, but also it once again shows how little initiative boards show in their ability to mature organically without being forced or threatened.

Everywoman’s Benson adds: “The real issue is the health of UK plc’s female talent pipeline. While many young and ambitious women start off on the right track, the pervading macho, inflexible culture in business today makes it very difficult for women to progress beyond a certain point. If qualifications or abilities are not the problem for women succeeding, we must change mindsets. If we don’t change the culture of business in this country, talented women will not thrive and we shall be poorer for it.”

The issue here is, after all, not just about the gender balance of a board, but it is also about experience, background, history and culture of the people that sit on the board to avoid so called group think. The world has changed but corporate boards rarely seem to reflect these changes nor appear to want to move with developments.

Few in the UK want quotas and the recent appointments prove that we don’t need them, but we do need corporates to become more open to change without first being threatened with regulation.

A time for open debate

Companies do not like to feel like they are unpaid tax collectors for the government

By Michelle Perry | Published 14:48, 20 October 11

OpenDebateThere were numerous responses to ActionAid’s report earlier this month that 98 of the FTSE 100 companies use tax havens located as far as the Cayman’s to islands closer to home like Jersey. What wasn’t surprising were the polarised views. Tax issues rarely produce indifference.

No public defence was made by the influential, but media-shy, group of 100 finance directors. But the group did respond to me by email (not in person) to say that the Hundred Group are “absolutely committed to acting with integrity and transparency in all tax matters”.

The statement went on to say that the UK’s top companies continue “to make a substantial contribution to the UK public finances”. It quoted the annual study of total tax contribution – a survey set up six years ago to counter criticism of corporate tax avoidance. The survey shows that the Hundred Group member companies contributed £56.8 billion (or 11.9 percent of all government tax receipts) in the year to 31 March 2010.

It’s true, of course, business does contribute significant sums in taxes to government. However the taxes cited in this report tend to be a combination of those borne and those collected.

It’s important not to blur the lines here. It’s this very point that many companies dislike. They do not like to feel that they are working as an unpaid, unglorified tax collectors for a government whatever its colour.

But in reaction to ActionAid’s research I do not feel this is a valid response. In fact it does not respond to the research, but redirects attention and shirks the issue.

We can not have a debate about tax or tax havens – their validity or not – until these companies and more to the point these finance chief acknowledge freely and publicly that they use them and why they use them. It may turn out that these reasons are wholly valid but until they state them, we cannot have a grown up debate about this burning issue.

We need to have this debate so that the companies can regain a value in the eyes of society and until we do large corporates will continue to be seen, wrongly, by a large majority of the British public, as a parasite of the taxpayer.

This is the perfect opportunity to speak openly and freely on these matters.

Time for a ratings shake-up

Agencies consider their ratings just opinions but they are undoubtedly powerful opinions

By Michelle Perry | Published 09:46, 21 October 11

RatingsI was heartened to see the news today that Brussels is considering sweeping changes to the regulation of credit ratings. It a move that’s long overdue and an issue I raised in 2005 as associate editor of a weekly magazine I used to work on.

Of course it seems a shame that the main and most contentious proposal by European regulators would be to suspend credit ratings of countries undergoing bail-outs, according to a draft of the proposals seen by the Financial Times.

This is slightly disingenuous of the EU to overhaul the system when the eurozone is currently in the throes of a stalemate over country bail-outs and how to rescue major banks.

Nonetheless an overhaul or at the very least a thorough investigation of how these agencies function, who they’re accountable to and if their methodology is transparent is timely.

My point back in 2005 was however founded on the credibility and independence of ratings agencies.

Six years ago the credibility of their research was attacked when they have failed to spot companies on the verge of an implosion. Enron, Worldcom, Parmalat and Refco were all issued with investment grade ratings weeks before the accounting scandals embroiling them broke.

In 2003 Standard & Poor’s credit analyst Hugues de La Presle put Parmalat’s bonds on a watch list for a downgrade. It was weeks before the revelation that there was a $10 billion (£5.7 million) black hole in its accounts.

When de La Presle was asked why he had kept Parmalat’s investment-grade rating, he said: “When the [chief financial officer] of a major company says the cash is there and it’s freely available, it’s a very strong statement.”

It is this very fact that ratings agencies base their valuations on data supplied by company insiders, which by its nature cannot be independent or objective, that is troubling.

Agencies consider their ratings as just opinions but they are undoubtedly powerful opinions; that in these times can make or break a country or institution. With this power should come adequate responsibility and transparent accountability.

I look forward to hearing more details about the proposals.