1. www.fm-magazine.com • October 2015
LEADER
THOUGHT
Dominic Barton, MD of McKinsey & Co, on the
‘new normal’ challenges facing the C-suite
KATHERINE
GARRETT-COX
CEO, Alliance Trust
LADY JUDGE
Chair, the Institute
of Directors
SHEIKH
BILAL KHAN
Co-chair, Dome Advisory
MERVYN KING
Chairman, the
International Integrated
Reporting Council
PAUL POLMAN
CEO, Unilever

2. Financial Management | October 20154
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Financial Management
is published for CIMA by
Seven, 3-7 Herbal Hill,
London EC1R 5EJ
Editor-in-chief, finance
Jon Watkins
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Eila Madden
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Lawrie Holmes
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Katy Ward
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Ciaran Christopher
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Head of pictures
Louise Fenerci
Coverimage:ChristopherWahl/ContourbyGettyImages,AndySmith
The new
normal
3
A word from the
president Myriam
Madden FCMA, CGMA
6
Dominic Barton, global
managing director of
McKinsey & Co, on
why business leaders
need to look far beyond
the next quarter’s results
13
Inform A digest of the
latest developments in
finance and beyond
16
Dame Fiona Woolf,
former Lord Mayor of
London, explains the
“new normal”
18
How corporate CEOs
are getting to grips
with the problems posed
by water scarcity
22
Opinion Chris Langdon
and Nik Gowing
assess the scale of the
C-suite challenge
25
The data How long
does the average
S&P-500 chief executive
last in the job?
Thevalue
of inclusion
38
Why truly inclusive
organisations
possess a crucial
competitive advantage
40
Katherine Garrett-Cox,
chief executive of
Alliance Trust, on the
dangers of groupthink
42
Which companies have
accepted the clear case
for diversity at board
level – and are enough of
them acting on it?
26
Professor Mervyn King
HonFCMA reveals how
Nelson Mandela inspired
him to start the integrated
reporting movement
30
CIMA’s CEO, Charles
Tilley FCMA, CGMA,
offers his perspective
32
Thinking Sheikh Bilal
Khan on what the West can
learn from Islamic finance
34
An interview with Lady
Judge, the new chair of
the Institute of Directors
Rethinking
the system
Risingto
the challenge
46
How the latest tools
and techniques can
help CFOs to manage
amid uncertainty
52
Innovation Why the very
best leaders know that
listening skills are just as
important as the power
of persuasion
53
Must read The Ignorant
Maestro: How Great
Leaders Inspire
Unpredictable Brilliance
5340326
This month’s FM is based on five key leadership themes:
‘The new normal’, ‘Rethinking the system’, The value of inclusion’,
‘Rising to the challenge’ and ‘Supporting future leaders’
Leadership
special issue

3. 5Financial Management | October 2015
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Supporting
futureleaders
54
Are too many graduates
and school-leavers
ill-prepared for the
demands of work?
57
Study notes Case Study
Exams at Operational,
Management and
Strategic level; F1
Financial Reporting and
Taxation; and P1
Management Accounting
66
Watercooler Signing off
with Churchillian wisdom
57
In this volatile, uncertain, complex and
ambiguous world, good leaders need
good information to make effective
decisions that create value, enabling
them to manage risk and seize new
opportunities. With that in mind, this
special issue gathers insights from
some of the world’s leading thinkers in
business, finance and academia.
We start by analysing what our cover
interviewee, Dominic Barton, refers to
as the “new normal”, where received
wisdom about the world no longer
applies. McKinsey & Co’s global MD
calls for a different form of capitalism
in response – a theme echoed by
Dame Fiona Woolf, a former Lord
Mayor of London (p16), and confirmed
by research that reveals the scale of the
challenge (p22). In this new era, where
business must take responsibility for
the conditions that fund it, Paul
Polman HonFCMA, Unilever’s CEO, is
one of a handful of leaders to describe
how they have taken ownership of a
problem that goes far beyond corporate
boundaries: water scarcity (p18).
The next section examines the
possibilities created by rethinking the
system we work in. Professor Mervyn
King HonFCMA recalls how Nelson
Mandela persuaded him to restructure
corporate governance in South Africa,
resulting in his pioneering work on
integrated reporting (p26). We also
hear from Lady Judge, the first female
chair of the UK Institute of Directors
(p34), and from a doyen of Islamic
finance, Sheikh Bilal Khan – who
argues that the global financial system
has barely improved since the crisis
(p32). And CIMA’s CEO, Charles Tilley
FCMA, CGMA, explains how the Global
Management Accounting Principles
can help CGMAs to give leaders all the
strategic insights they need (p30).
The subsequent section explores
how inclusive leaders who foster trust
and build relationships will succeed
in the long term. US sustainability
activist Dianne Dillon-Ridgley and
Simon Langley, UK head of inclusivity
and diversity at National Grid, make a
compelling case for all companies to
be inclusive (p42), while Alliance
Trust’s CEO, Katherine Garrett-Cox,
shares her experiences of building an
inclusive culture in a 127-year-old
financial institution (p40).
The last two sections focus on how
firms are rising to the challenge and
supporting future leaders. In particular,
we look at how leading CFOs, including
ICICI Bank’s N S Kannan, use critical
data to deal with uncertainty and risk.
This special issue is a starting point
for future editions conveying key
messages about effective leadership
and its underpinning behaviour and
culture. It recognises the many
challenges facing CGMAs, but also the
opportunities that they, with the help
of the Global Management Accounting
Principles, can unlock.
LawrieHolmes
Editor’s note
Please send
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4. visionCEOs are under too much pressure to deliver the
next quarter’s results when they should be focusing on
the value their companies can create in five years’ time.
That’s the view of McKinsey & Co’s global managing
director, Dominic Barton, who tells Lawrie Holmes
about a growing movement to cure corporate myopia
ChristopherWahl/ContourbyGettyImages
6 Financial Management | October 2015
THE NEW NORMAL

5. 7Financial Management | October 2015
THE NEW NORMAL

6. 9
DOMINIC
BARTON
1980 Studies economics at the University of British
Columbia, Vancouver, before taking an MPhil in
economics under a Rhodes scholarship at the
University of Oxford.
1985 Recruited as a currency analyst in London by
investment bank Rothschild.
1986 Returns to Canada to join McKinsey & Co’s
Toronto office and is elected as a partner after two
unsuccessful applications.
1997 Relocates to Seoul to work in McKinsey’s South
Korea office.
2000 Becomes head of the South Korea office.
2004 Promoted to the post of chairman of McKinsey’s
Asia division, based in Shanghai.
2009 Elected by his fellow directors as global
managing director of McKinsey & Co.
2010 Made honorary fellow of Brasenose College,
University of Oxford.
2012 Re-elected to a second three-year term as MD.
2015 Re-elected to a third term.
Financial Management | October 2015
THE NEW NORMAL
F
ew people are
better qualified than
Dominic Barton,
the global managing
director of the world’s
most influential
management
consultancy, to
comment on the challenges facing
chief executives and their boards.
So when Barton, who has held the top
job at McKinsey & Co since 2009,
expresses his concern about the global
mega-trends affecting not only
companies, but also the societies they
operate in, business leaders would be
well advised to take note.
But the London-based Canadian notes
that, although all these challenges may
appear daunting at first sight, they also
present a number of opportunities.
“I have a strong feeling that the
next 10 to 15 years are going to be
extraordinary,” he says. “There are so
many forces under way. For one thing,
there is a big shift in economic power
from the West to the East, where there
are 2.2 billion new consumers in China,
India and Indonesia – and also in Africa.
That’s a massive force, which will prove
stronger than the industrial revolution.”
Barton is well placed to observe and
analyse these trends as they develop.
His consultancy has carved out a unique
position in its field, having worked
closely with corporate leaders all over
the globe for many years.
World traveller
Barton, born in 1962 to a missionary and
a nurse in Uganda’s capital, Kampala,
has witnessed some of these seismic
changes at close range, having been
something of a globetrotter. After
graduating from the University of
British Columbia in Vancouver with an
economics degree, he won a prestigious
scholarship from the Rhodes Trust to
pursue postgraduate studies at the
University of Oxford. He started his
career as a currency analyst at
investment bank Rothschild before
joining McKinsey’s office in Toronto
in 1986. Having been elected a partner
on his third attempt, he relocated to
Seoul for a long stint running the firm’s
Asian operations. His experience in Asia,
which inspired him to co-write China
Vignettes: An Inside Look at China
(Talisman, 2007), is thought to have
made him a strong candidate in the
2009 vote in which senior directors
elect their managing director – a ballot
that’s held every three years.
Now serving his third consecutive
term, Barton observes that the
challenges facing companies are many
and varied. Citing the “technology
overload” factor as one example, he says:
“Look at big data, the computing power
revolution, 3D printing and biotech:
these are moving three to five times
faster than management is ready to deal
with. Innovation is happening so
quickly. Just as you get abreast of one
element, it pretty much changes –
especially digitisation. Technology is
growing at such a phenomenal rate.”
With an eye on the macro aspects
of the mega-trends unfolding today,
he acknowledges that businesses are
facing a complex and difficult situation.
“With lots of technological change, as
well as an ageing population and
geopolitical shifts, there are major
challenges to our system,” Barton says.
But he is also confident that a world
posing multiple known and unknown
challenges can be a profitable
environment for those leaders who
have come to terms with the new normal
and the new thinking it requires.
“All together, these challenges form
valuable opportunities to companies –
as long as they understand these shifts
are happening in a volatile world,”
Barton says. “Opportunities exist for
those with a long-term view and a strong
proposition of where they want to go.
Companies have to consider their
resilience factor. They need to employ
health metrics and apply the kind of
rigour that the Global Management
Accounting Principles provide.
He continues: “Boards need to be
asking the relevant questions for today:
what is the quality of the talent pool?
What is the level of trust? What is the
level of innovation? Ultimately, they
need to be asking how much
resilience they have for shocks, be they
financial, operational, human or
regulatory. These are just some of the
factors that companies are having to
think about. In the long term, it’s about
staying power: can you zig when other
people zag?”
Companies need to make long-term
investments to ensure that they can
innovate effectively and create
sustainable value, but a short-termist
approach to strategy has taken hold,
especially among plcs, according
to Barton. This has developed
largely because of investors’ demands
for frequent progress updates and,
particularly, the requirement on US
companies to issue quarterly reports.
‘What’s great about integrated reporting is
the measurement of the full performance of
a company, not just its financial results’

7. “We have all become more short-
termist – boards, CEOs, CFOs and
investors – when there needs to be more
long-termism,” Barton says. “It’s
difficult to think about the long term
because quarterly reporting incentivises
companies against conducting research
and development, training people and
building resilience against shocks.”
The good news is that some of the
world’s biggest asset management
companies are already seeing the virtues
of long-termism, he says. “It’s hugely
valuable that investors such as
BlackRock, Canadian Pension Plan and
Vanguard Group are getting out there
to say ‘we don’t care about quarterly
results’ and are encouraging boards
and CEOs to apply longer-term metrics.
‘Quarterly’ should mean 25 years, not
three months. I’m in favour of three-,
five- or even 10-year metrics when
investing in companies, because I think
the publication of quarterly results
makes things more volatile.”
That argument really hits home
when you make comparisons
between the capital investment
strategies of plcs and those of
privately owned entities. Barton
points out that privately held or
family-owned firms “invest,
on average, three times more than
public companies do”.
Fortune favours the brave
A number of leaders of big publicly
owned companies have not only
shown that they understand the
corrosive effects of short-termism,
but have also been prepared to swim
against the tide and do things their
own way, according to Barton.
“The declaration by Unilever’s
CEO [Paul Polman HonFCMA]
that the business would no longer
publish quarterly results was a bold
and courageous move,” he says.
“Andrew Liveris, chairman and
chief executive of Dow Chemical,
is another example. He said publicly:
‘I could push up my short-term
performance by cancelling long-term
more of. I think IR’s measuring and
auditing of results, by looking at areas
such as sustainability performance and
how much is invested in people, are key.
What’s great about integrated
reporting is the measurement of the
full performance of a company, not just
its financial results.”
What is crucial in these
interconnected areas is that business
leaders are allowed to take the lead,
argues Barton, who believes that
thinking more broadly about the
behaviour of companies is an
important part of a leader’s remit.
“It’s vital to do this,” he says. “And I
think people are stepping up in this area
– including investors, chief executives
and their boards.”
He cites the work of Sir David Walker,
the former chairman of Barclays, who
was appointed by the UK government
to investigates standards of corporate
governance at financial institutions
in light of the 2007-08 financial crisis.
“More recently, fund manager
Schroders organised an event where
Lady Lynn de Rothschild, CEO of
investment company E L Rothschild,
called for inclusive capitalism and
declared that her business would not
be focused on quarterly reporting,”
he says. “Greater inclusion is what
we need to be thinking about.
There are a number of people
looking at a more inclusive form of
capitalism, working with a broader
set of stakeholders.”
Barton believes that the example
set by businesses in Scandinavia,
where there is a strong emphasis on
social responsibility and sustainable
capitalism, is a good model to
emulate. “Companies there have a
sense of collective responsibility,”
he says. “They place importance on
education and taking care of the
not-so-well, but that doesn’t mean
they’re not performance-driven.”
So how is a successful business
likely to be run in 10 years’ time?
“The model of capitalism is
starting to shift amid a recognition
‘“Quarterly” should mean 25 years, not three months.
I’m in favour of three-, five- or even 10-year metrics’
ChristopherWahl/ContourbyGettyImages
programmes such as R&D, training and
various environmental activities. You’d
see a very big short-term gain, but we
would not be around in 10 years’ time.’”
Attendees at a recent McKinsey
business summit in New York, including
75 board members of leading
companies and representatives from
bodies such as CIMA, agreed to “push for
long-termism, developing health metrics
to make that happen”. If enough people,
especially investors, can be encouraged
to focus more on the five- to 10-year time
horizon, Barton believes that there is
room for CEOs to develop new thinking
in this area. “There’s been a shift and I
do think shifts like that will make a
difference,” he says.
When it comes to performance
incentives, companies need to move
away from short-term measures, he
adds. “Not enough organisations have
people health metrics, for instance.
Integrated reporting (IR) is a great
example of an approach we need to see
10 Financial Management | October 2015
THE NEW NORMAL

8. ‘The model of capitalism is starting to
shift amid a recognition that, if it
doesn’t adapt, it might eat itself… The
system has been way too short-termist,
but investors are starting to shake it up’
narrow system. We have to step back and
look at how we fit in the whole system.”
Barton also believes that many
business leaders have a sense of fear that
is restricting them from thinking freely.
“When you’re getting pressure from
board members and investors, it’s
difficult to be bold, as this sense can
overwhelm you,” he explains, adding
that his overriding impression is that an
imbalance of risk and reward gives
leaders no incentive to make courageous
and creative decisions.
“We have to see how we can recognise
and reward leaders who take the long
view and are being bold – with board
members backing them,” Barton says.
“We need more voices supporting them
in doing this.”
For more information about the
Global Management Accounting
Principles, visit bit.ly/CGMAGMAPs
that, if it doesn’t adapt, it might eat
itself,” Barton says. “From the 1970s
until three to four years ago, the system
has been way too short-termist, but
investors are starting to shake things up.
So I think there is a movement for
change – and more business schools are
starting to think along the same lines.
Integrated reporting is very important
for making this happen.”
Despite these encouraging signs, he
suggests that many leaders are still
struggling to see the bigger picture.
“Most of us think we’re working in a
box,” he says. “A firm has its customers
and regulators, and we assume it’s a
McKINSEY & CO
BY
NUMBERS
11Financial Management | October 2015
THE NEW NORMAL
today it has 107 offices
in 61 countries.
1926
Founded in Chicago in
McKinsey employs
9,000consultants and nearly
2,000research and information
professionals, who speak
120+languages.
Client base:
35%Americas
40%Europe
15%Asia Pacific
10%Middle East
& Africa
It’s owned and
governed by
1,400partners,
representing more than
70nationalities.
It was voted
9thbest place to work in a
2015 poll of US and UK
employees by online
recruiter Glassdoor.
Its revenue in the
year to October 2014 was
estimated by Forbes as
$8bn.

9. 13
M
ore than 60 per cent of business leaders are
optimistic about the world’s economic
growth prospects over the next three years,
a survey by KPMG has found.
Its “Global CEO Outlook 2015” research report
also reveals that 54 per cent are more optimistic than
they were last year about how well their businesses
are likely to perform. For 47 per cent of respondents,
cross-border expansion is a top capex priority
between now and 2018.
It also notes that 86 per cent of CEOs are worried
about their firms’ ability to retain customers,
74 per cent fear the potential disruptive impact of
new entrants to their markets and 73 per cent are
concerned about the cost of regulatory compliance.
“We know better than ever how interconnected
we are in the global economy,” the report states.
“Recent years have seen rapid change in established
and emerging markets, high levels of geopolitical risk
affecting major economies and the continued impact
of a financial crisis that rippled around the world.”
The research, based on interviews with more
than 1,200 chief executives, also reveals that almost
80 per cent expect to increase their recruitment
activities in the next three years, with “developing
new growth strategies” a top priority.
Chief executives ponder foreign expansion but fear
customer disloyalty as confidence edges upwards
GettyImages
INFORMNEWS/OPINION/COMMENT/INSIGHT/ANALYSIS

10. 14 INFORM Financial Management | October 2015
THE PROBLEM I’m the new FD of
the UK subsidiary of a European
multinational. Group HQ is using a
tax loophole in a way that wouldn’t
stand up to scrutiny by HM Revenue
& Customs. It is pressuring me to
use this too in order to understate
profits at my firm, which has just
had its most profitable year yet.
I want to explain to HQ why I would
refuse to sign off on that.
CIMA’S RESPONSE You’re right not
to associate yourself with misleading
information. Principles governing
integrity (s110 of the code of ethics)
and the reporting of information
(s340) are at risk and there’s a
potential breach of tax law. There is
also a wider reputational risk should
the public hear about such dealings.
Alert the relevant board members,
documenting your concerns. Your
influencing skills will be key in
helping group HQ to understand
how crucial it is to take a long-term
view of protecting the business.
FOR THE CODE AND OTHER
ONLINE ETHICS RESOURCES, VISIT
WWW.CIMAGLOBAL.COM/ETHICS
CIMA does not provide legal,
investment, professional or career
advice. No responsibility or liability
whatsoever is accepted for any
error or omission (whether or not
arising out of negligence), or for
any loss or damage sustained
as a result of reliance on information
supplied or comments made.
EY calls on G20 to
increase support for
next generation of
business leaders
The governments of the G20 should
implement business policies with clear
goals for encouraging entrepreneurship,
a research report from EY has urged.
Youth unemployment remains at 16 per cent
across the G20, according to “From classroom
to boardroom: creating a culture for high-
impact entrepreneurship”. Despite this, while
65 per cent of young people in those countries
have ambitions to run their own businesses,
only 15 per cent of existing entrepreneurs
believe that their governments are properly
supportive of this aim.
“In pivoting education to focus on the tools
and skills necessary for entrepreneurship,
policies can support a culture supportive of
entrepreneurship through a youth’s lifetime,”
said Rohan Malik, global emerging-markets
leader, government and public sector, at EY.
“The challenge for policymakers is to
uncover best-in-class policies to foster real
improvement in entrepreneurial culture in
their respective economies.”
The report contains a number of other
recommendations for producing the next
generation of business leaders. These include
the introduction of policies encouraging
primary schools to teach commercial skills
and fostering entrepreneurship programmes
in secondary and tertiary education.
To learn more about the effort to support
future leaders by preparing young people
better for the workplace, turn to page 54
This issue’s dilemma
HOT
POTATO
COVERT HACKING THREAT WORRIES AMERICAN CFOS
The risk of an undetected cyber-security breach
is a key source of concern for finance chiefs in
the US, a study by Grant Thornton has found.
According to its “Summer 2015 CFO survey”
research report, 57 per cent of the 912 finance
chiefs polled are most perturbed about the
potential for clandestine attacks on their IT
systems. More than 40 per cent of those
working in multinational companies fear
losing sensitive data and intellectual property
to cyber-criminals.
“It’s the unknown and the undetected that
is keeping executives on edge, according to
our data,” said Skip Westfall, co-leader of
Grant Thornton’s cyber-security practice group.
“It’s easy for companies to say that they are
being proactive about cyber-security. But, when
executives don’t know exactly what the next
breach could look like, that adds to their level
of anxiety.”
To learn more about risk mitigation in a
digital environment, read the Opinion piece
by Nik Gowing and Chris Langdon on page 22
Shutterstock
THE NEW NORMAL

11. 15Financial Management | October 2015
CIMA and AICPA
issue advice on
ethical strategy
ON
CGMA.
ORG
For chartered
global management
accountants, the
following content
is available online
Senior chartered global
management accountants should
play a leading role in ensuring
that their organisations’ policies on
ethics are effective, according to new
CGMA guidance.
The “Implementing an effective
corporate ethics policy” tool is
designed to help senior leaders
formulate their strategies in this area
by offering five case studies and a
series of key questions to consider
(bit.ly/CGMAethicsPolicyTool).
“Communication of a company’s
ethics policy never ends,” the document
states. “Quality is key, as constant
communication that lacks focus or
relevance is more likely to irritate than
persuade. The most successful ethical
organisations embed high-quality
communications across the business.”
The guidance recommends that
companies should not consider
online courses in how to deal with
serious issues such as bribery to be an
effective substitute for face-to-face
training. It also argues that the
ultimate test of the effectiveness of an
ethics policy is whether or not any
employee would feel comfortable
enough to air an ethical concern, safe
in the knowledge that the organisation
would respond appropriately.
Download your
free FM app for
the following
exclusive content:
IN THE
APP...
DIFFERENT MASTERSTROKES:
Watch an exclusive video
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achieved over the years by
the movement for diversity and
inclusivity in business.
BUSINESS BRAIN-SCAN:
Do effective leaders think along
similar lines? Take a peek inside
the minds of successful CEOs and
CFOs as we probe the psychology
of leadership.
TALES OF THE UNEXPECTED:
How scenario planning and
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in an uncertain sociopolitical
and economic environment.
Download the FM app
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Shutterstock
Blue-chip CEOs
showpayrestraint
More than a third of FTSE-100
chief executives did not
receive a pay rise this year,
according to figures from PwC.
Its research report, “Taking stock
– review of 2015 AGM season”, reveals
that the median reported base salary
of a FTSE-100 boss is £891,000.
The median annual bonus is £1.12m.
It also states that the UK’s large-cap
firms are improving transparency with
respect to bonus disclosures and, by
adding clawback provisions, requiring
executives to hold their stocks for longer.
Tom Gosling, executive pay partner at
PwC, said: “There’s been growing
dissatisfaction with long-term incentives,
which are often seen as a lottery and too
complicated. In response, companies are
looking for performance measures that
more closely link to strategy. At the same
time, they’re satisfying shareholder
demands by increasing the length of time
that shares must be held.”
World-class finance: better
analysis, less cost, fewer people
With fewer staff devoted to
compliance, the top finance teams
can spend more time and money
on forward-looking duties.
bit.ly/1igEDZ7
Six ways to become more resilient
to cyber-security threats
Despite efforts to do a better job
handling cyber-threats, financial
institutions worldwide are still
outdone by nimble cyber-criminals.
Here are tips for how they can
become more resilient.
bit.ly/1ODgfL4
Lack of career clarity hinders
employee retention
Seventy-eight per cent of workers
say they would stay longer with
employers if they had a defined
career path, according to a survey
by Mercer.
bit.ly/1OfN178
Membership of EU good for
British business, CIMA poll says
British voters have been promised
their say on whether the country
should remain part of the EU in a
referendum due to take place by
the end of 2017.
bit.ly/1KGSjc2
Decision-makers not always
relying on financial planning and
analysis for business problems
Decision-makers still go with their
gut instead of relying on financial
planning and analysis, according
to research from CEB.
bit.ly/1EQshkr
Fraud costs UK companies an
estimated £103bn per year
Companies could gain a significant
advantage by measuring, managing
and minimising their losses to
fraud, which are equivalent to
5.6 per cent of expenditure.
bit.ly/1Qr9EVb
THE NEW NORMAL

12. Dame Fiona Woolf, Lord Mayor
of London last year, offers her
view of the ‘new normal’: a world
of huge challenges – but also great
opportunities – for municipal
leaders and businesses in cities
Capital
project
How do we make our cities successful for the
long term? It’s a challenge made all the more
daunting by the “new normal” of climate change,
resource scarcity and urbanisation.
The good news is that it’s not all bad news.
Municipalities that can adapt and plan effectively
for the long term will find plenty of opportunities
to prosper under such circumstances. But, to my
mind, their sustainable success will depend on
a clear vision about what cities are for.
I believe that they are factories of the mind,
driving innovation, creating wealth and
providing equality of opportunity in education
and employment. Thriving cities will always
be full of industry, stimulation and variety –
and they will always be victims of their own
success, because they are magnets to
the planet’s fast-growing mobile population.
16 Financial Management | October 2015
THE NEW NORMAL

13. RickPushinsky,GettyImages
Some people see this population growth as a
challenge. I see it as a huge opportunity. Every
citizen matters – the wealth that we all create
together is what makes our cities valuable. The
starting point of any urban development plan must
therefore be to consider what the people need in
order to make their city as successful long into the
future as it has been in the past.
Complex challenges
As optimistic as I am, I do understand people’s
reservations about the rate at which the world’s
urban population is expanding. The statistics
are dramatic: the global population is forecast
to reach nine billion and the urban population
6.3 billion by 2050. The Organisation for
Economic Co-operation and Development predicts
that three billion people will form a new middle
class in Africa and Asia by 2030 – a transformation
far greater in scale and speed than that created by
the industrial revolution. Such an upheaval will
create complex long-term challenges for municipal
and business leaders in areas as wide-ranging as
finance, ethics and diversity.
Capitalism must pioneer sustainable models of
finance that deliver long-term value and are fit to
serve the spiralling urban population. Financing,
particularly private-sector investment, will be a key
component in the development of tomorrow’s
cities, as will smarter design and delivery in areas
such as power, sanitation and transport. This is
why I launched a programme called Tomorrow’s
City when I was Lord Mayor of London in 2013-14.
This initiative brings together leaders across a
range of fields to explore how we can work together
on innovative approaches to tackle the challenges
of urban planning under the new normal.
For our cities to be successful, the organisations
inside them need to create value for society as a
whole. That will require them to behave
responsibly and with integrity from top to bottom.
Products and services should be designed to meet
consumers’ genuine needs. Similarly, every
shareholder needs to be a good custodian to ensure
that prosperity is shared.
This is why we need to ensure that market
mechanisms encourage companies to approach
value creation in the right way, as identified by
John Kay in his 2011 government-commissioned
review of UK equity markets and long-term
decision-making. Improved company reporting is
one such mechanism and it’s an area that I have
explored in collaboration with Mervyn King
HonFCMA, chairman of the International
Integrated Reporting Council.
Because issuing quarterly reports can lead to an
excessive focus on short-term gains for investors
as opposed to the longer-term benefits for society
as a whole, some big companies have stopped the
practice. Unilever is one such company. As its CEO,
Paul Polman HonFCMA, says: “We are in the
business of maximising returns, but we can
maximise social and environmental returns too.”
This is a vision of enlightened capitalism that
everyone in the financial sector should adopt.
Embracing diversity
Mass migration to cities around the world is
creating urban populations with a rich mix of
cultures, skills and experiences. Employers need to
embrace all these new city dwellers. There has
always been a moral case for inclusion but there is
now a clear business case. Our cities will lose out if
they do not realise the benefits of diversity – fresh
perspectives, originality and innovation – by
enabling talented people from all backgrounds to
get to the top. This change will not happen over
night, but we need to ensure that businesses
employ a true meritocracy so that the best succeed,
regardless of gender, race, sexuality or nationality.
It’s one thing to have diversity, but quite another
to make the most of it. If we don’t harness all these
different perspectives, who will come up with the
innovations we need in order to capitalise on the
huge opportunities offered by the new normal?
For more from Dame Fiona Woolf, see page 42
‘Thriving cities will always be
full of industry, stimulation
and variety – and they will
always be victims of their
own success, because they
are magnets to the planet’s
fast-growing population’
17Financial Management | October 2015
THE NEW NORMAL

14. Financial Management | October 2015
THE NEW NORMAL
AQUEOUS
SOLUTIONS
18

15. Illustration by Kyle Smart
Financial Management | October 2015
THE NEW NORMAL
“Almost a fifth of the world’s population – about 1.2 billion
people – live in areas where fresh water is scarce. Under the
existing climate-change scenario, almost half of the
population will be living in areas of high water stress by 2030.
Consumer demand for water has doubled since 1950 – and it’s
predicted to double again by 2030. The consequences for food
security, health and living conditions are substantial.”
So says Paul Polman HonFCMA, chief executive of Unilever,
describing what’s arguably the most serious climate-change
risk facing businesses. He is one of a small number of
corporate leaders who have been prepared to speak openly
about how their firms are responding to the direct threat of a
global reduction in the supply of fresh water. In doing so, they
are drawing attention to a problem that affects communities
across the planet.
Polman, who has consistently spoken out on sustainability
issues since his appointment in 2009, adds: “Our forecasts
show that consumers’ increasingly limited access to water
already negatively affects economic growth in developing and
emerging markets. Seven of our biggest markets – including
India, China and Indonesia – are already categorised as
water-scarce. That is not good news for our business, but it’s
a personal crisis for each and every family affected.”
Reflecting on the group’s broad portfolio of brands, he says:
“While continuing to invest in products that are more water-
efficient, we’re also exploring options beyond our traditional
business model by investing in solutions for communities.
If we can inspire people to take small everyday actions, it can
add up to a big difference.”
Unilever’s position on water scarcity fits with the group’s
2010 “Sustainable living plan”, which aims to double the size
of the group’s business while reducing its environmental
footprint and increasing its positive impact on society. “As part
of the plan, we are working towards ambitious targets for
water-related challenges,” says the man in charge of Unilever’s
Wash (water, sanitation, hygiene) agenda, Nitin Paranjpe,
global president of the company’s home care business.
select band of CEOs are addressing a risk
that extends far beyond the realms of business.
But, as Lawrie Holmes reports, they cannot
solve the problem of water scarcity alone
As well as setting targets to reduce the amount of water
consumed in manufacturing and using Unilever goods, the
plan covers key areas of social development – including the
empowerment of women in water-scarce regions.
“It’s estimated that women spend 200 million hours every
day collecting water. This is time they could be using to earn an
income, get an education or support their communities – all
progressive changes that can support women’s empowerment,”
he explains. “Our home care business has a hugely important
role to play in the transformational change needed.”
The company has researched consumers’ water usage habits
and tested out ways to change their behaviour. It’s using its
findings, along with innovative technology, to develop more
water-efficient products. The aim is to enable women to
spend more time on work, education and/or childcare, while
conserving water for other important uses. Its R&D efforts are
heavily focused on laundry products, household cleaners and
toiletries, because these goods account for 99 per cent of the
consumer-use phase of the company’s water consumption.
Unilever has further plans to advance the debate on water
scarcity. “Business as usual is not an option,” Paranjpe says.
“The key now, after the launch of the sustainable development
goals agreed by UN members at its 2012 Rio Earth summit, is
to measure the goals and define who is accountable globally
for achieving these. Only then will we see progress.”
A change is brewing
SABMiller, the world’s second-largest brewer, has also taken
the initiative in addressing water scarcity. From end to end,
the beer-production process relies heavily on water.
“We want a resilient world in which our business, local
communities and ecosystems share uninterrupted access to
safe, clean water,” says the group’s chief executive, Alan Clark.
“The business case for conserving water, both within our own
operations and in the communities where we work, is clear
and compelling. Water stress is holding back prosperity and
growth. Tackling it can release untapped prosperity at every
19

16. Financial Management | June 201320
‘Water scarcity needs to be
addressed alongside food and
energy security, with businesses,
governments and communities
working in partnership’
Financial Management | October 2015
THE NEW NORMAL
level, from rural and urban livelihoods through to business
growth and entire national economies.”
The South African, who was appointed to the top job in
2013, adds that businesses are still too focused on their own
operations, suggesting that only by working with local
partners and communities can they achieve effective change.
“No sector of society can solve all the water challenges on
its own,” Clark says. “The risk cannot be tackled in isolation.
It needs to be addressed alongside food and energy security,
by businesses, governments and communities working in
partnership to develop practical solutions at a local level.”
SABMiller’s approach to the problem has a number of
elements, according to Anna Swaithes, its director of
sustainable development. “The group aims to secure the water
supplies we share with local communities through
partnerships to tackle shared risks. It also seeks to reduce its
water consumption to 3 litres per litre of beer produced and
1.8 litres per litre of soft drink.”
She continues: “Our bespoke risk-assessment process
helps us to understand the nature and extent of local water
risks better. It gives us a detailed, watershed-level, site-by-site
picture of our exposure. Our breweries are able to identify and
prioritise risks using this data and so develop and implement
mitigation action plans.”
Percentage proof
Carlsberg, another leading brewer, has also been making
concerted efforts to improve water efficiency at its production
facilities, as its corporate social responsibility manager,
Wouter de Groot, explains.
“As part of our environmental commitments, we’re working
towards a 2017 goal of reducing relative water consumption by
5 to 10 per cent compared with 2014 levels,” he says. “Our main
focus is to improve our water efficiency continuously in our
breweries. We have also put in place dedicated
programmes at those of our sites that are subject to
seasonal water scarcity. In addition, we are looking
at various options to engage with stakeholders,
including civil society organisations, governments
and industry partners, to address water scarcity
issues upstream of our breweries and improve
integrated water resource management.”
Because Carlsberg operates in several regions
where water is scarce, the group conducted a risk
assessment in 2013 to gain a better understanding
of the specific problems affecting those territories
and identify mitigating actions. De Groot cites a city in western
India as a key focus for regional water-saving measures.
“Owing to lower-than-average rainfall in the past two years
and urbanisation in Aurangabad, where Carlsberg India has
operations, the general demand for water has increased,”
he says. “This has reduced the availability of water for our
production process and resulted in the need to bring it in via
tankers. In response to this challenge, we are implementing
our total water management concept to reduce consumption
and ease the pressure on local resources. We have invested in
new equipment, including a pioneering water-recycling plant,
that will make our Aurangabad operation one of the world’s
most water-efficient breweries.”
De Groot adds: “Projections based on global trend data
indicate that some sites will be subjected to more water stress
within the next 10 years, so we continue to work on targeted
efficiency initiatives to mitigate this.”
Carlsberg and SABMiller are members of the Beverage
Industry Environmental Roundtable (Bier), a technical
coalition of global drinks companies co-operating to reduce
their industry’s environmental footprint. The body is working
to create a tool to calculate the “true cost of water”. Coca-Cola
Enterprises (CCE) is another member of Bier. The company,
which manufactures, markets and distributes Coca-Cola
products in western Europe, has been embedding
sustainability into its core business for a decade, according
to its CFO, Nik Jhangiani.
“We’re proud to have pioneered a shift from accountancy
towards an active response in many sustainability-related
areas – carbon, water, recycling – and we hope that other
businesses will follow this lead,” he says. “Sustainability brings
us many benefits, helping to capture operational efficiencies,
eliminate waste, drive innovation, deliver for our customers
and significantly increase employee engagement.”
20

17. Financial Management | October 2015
THE NEW NORMAL
CCE has set itself a target of using 1.2 litres of water to
make a litre of Coke by 2020. The current average is 1.36 litres,
which is 17 per cent less than it was in 2007. To achieve this
reduction, the company has made its manufacturing and
cleaning processes more efficient. Since 2011 it has invested
$2.8m in process optimisation and technologies such as water
meters, water mapping, and monitoring and targeting systems.
Trickle-down theory
Claudia Ringler, co-leader of the International Food Policy
Research Institute’s water programme, says that the real and
obvious threats posed by water scarcity to the beverage
industry have prompted its big players to convert rhetoric into
action. But she notes that the list of companies that can make
a difference stretches far beyond that single sector.
“First and foremost, this list covers the private irrigation
sector,” she says, explaining that “all farmers are private
irrigators with control over the water they get. The sector
encompasses privately owned sugar cane companies in Africa
that not only use a lot of water but also pollute it.”
Ringler, who also plays a leading role in the research
programme on water, land and ecosystems run by
the Consultative Group for International
Agricultural Research, says that all these groups
need to be encouraged by governments and
regulators to take positive action.
“Big polluters, such as agrochemicals companies,
generally can be encouraged to clean up their acts if
enforcement action is effective. Cleaning up big
mining operations could make a difference. Energy
producers tend to use a lot of water, too,” she says.
Clearly, firms in a range of thirsty sectors can
develop sophisticated responses by following the
example set by the pioneers, as Clark observes:
“Companies of all sizes and from all industries
need to step up on addressing water security.
Well-known brands can enhance awareness of the
challenge but it is equally important to drive real
change at a local level through collective action.”
The voices of the few who are willing to lead is
only the starting point, Polman adds. “When you
look at an issue like water scarcity, it is clear that no
individual institution, government or company
can provide the solution. In order to achieve the
type of transformational change needed to create
a systemic and sustainable impact, we recognise
that we must work in partnership with other interested
stakeholders who share our commitment.”
Jhangiani observes that key global development challenges
must be addressed urgently if the needs of future generations
are to be met. “The limited availability of natural resources,
the long-term impact of climate change and the inevitable
strain on public services will all have noticeable implications,”
he says. “We need to work together – governments,
businesses and civil society – to find the sweet spot between
commercially positive and environmentally positive.
He adds: “There’s little doubt that the companies
embracing and embedding sustainability will be more
resilient over time. Ultimately, it is these stories of success in
combining profit and purpose that will help the worlds of
finance and sustainability to talk a common language.”
CIMA, a founder member of the Natural Capital Coalition,
has published a report entitled “Accounting for natural
capital: the elephant in the boardroom” with IFAC and EY.
To download a copy, visit bit.ly/CIMAnaturalCapital
‘When you look at an issue like
water scarcity, it is clear that no
individual institution, government or
company can provide the solution’
21

18. 22
Thinking the unthinkable has to be routine for the leaders of all organisations, given
the scale and pace of change they are facing, argue Nik Gowing and Chris Langdon
W
hy did so many at
the very highest
levels in leadership
roles fail to
anticipate the
financial crash,
the migration crisis, President Putin’s
takeover of Crimea, the precipitous fall in
oil prices, the rise of Islamic State or the
threat of cyber-hacking? What is it that
inhibits the current generation of leaders
from thinking the unthinkable? These
are uncomfortable questions, to which
we sought answers for the Churchill 2015
21st Century Leadership Programme,
set up to commemorate the 50th
anniversary of Sir Winston Churchill’s
death. We have had close support from
CIMA and the Chairmen’s Forum.
Since February we have conducted
in-depth off-the record conversations
with 60 of the highest-level leaders from
the worlds of business and finance,
government, the military and the
humanitarian sector – and members of
the coming generation of leaders: the
millennials. In a confidential setting
they shared thoughts they might be
reluctant to air in the presence of their
immediate peers. Throughout we were
in listening mode and deliberately
non-prescriptive. Our aim in just over
six months has been to accumulate
a revealing new data set of frank
assessments from the highest levels.
Our report, “Thinking the
unthinkable: a new imperative for
leadership in the digital age”, is due to be
published at www.churchillcentral.com
on 13 October. It summarises the
thoughts, fears and ambitions of the
leaders we interviewed. It also draws on
ideas from panels hosted at business
leaders’ conferences. Additionally,
there were numerous spontaneous
conversations with leaders, plus
participation in gatherings with the
coming generation of millennials.
Opinion
LyndonHayes/DutchUncle
Financial Management | October 2015
THE NEW NORMAL
Nik Gowing
is a former news
broadcaster at
the BBC and
ITN. He is now
a visiting
professor in
the faculty of
social science
and public
policy at King’s
College London
Leaders were remarkably frank
about the new frailties and the dilemmas
of how to adapt smartly their own skills
and organisations to cope with what
most – but not all – saw as
unprecedented social, political and
economic upheaval. By and large, it was
felt that mindsets, behaviour and
systems are not adequately calibrated.
“Some CEOs are scared stiff. We must
be disruptive, taking risks and
challenging the status quo,” said Paul
Polman HonFCMA, Unilever’s CEO,
one of the few to go on the record.
Without exception, all the insights
they shared confirmed a clear direction
of travel. Indeed, many urged that we
dig even deeper because of the scale of
challenge and vulnerability for executive
behaviour. At this stage we did not
consider it appropriate to suggest
solutions. First should come a wider
debate on the scale of the problems.
Given that there are 23,000 books
covering leadership on Amazon, there’s
no shortage of proposed solutions.
The most salient point from the
research is that a convergence of
previously unthinkable events has left
leaders with a sense of vulnerability,
never before experienced, since the
financial crisis. Worse still, lessons may
have been learnt, but for most part they
have not been acted upon. Carl Bildt,
drawing on his experience as Sweden’s
foreign minister, called 2014 “the great
wake-up” for governments and
corporations, reflecting the private view
of many at that level. Alarm bells have
been sounding again in 2015, with the
unpredicted scale of Europe’s migration
crisis, the Greek economic crisis and too
many damaging cyber-attacks to list.
Why do leaders continue to be so
reluctant to conceive of unthinkables
that then happen? We conclude that
frequently it was simply unpalatable
for them. They and those who worked
for them were often in denial.
Of course, not all disruptive trends are
bad for business. The global diffusion of
smartphones and driverless cars,
and the much-anticipated developments
in 3D printing and the peer-to-peer
“sharing economy” all bring benefits –
at ever-faster speeds. Yet they also pose
key challenges for corporations and
governments to modify existing

19. 23
mindsets and systems to cope at high
speed in ever-shortening timeframes.
Many leaders admit to their struggle to
first realise and then adapt to the rapid
disruptive shifts emerging.
One of the most telling interviews
was with 27-year-old Aniket Shah, a
remarkable millennial who has already
had careers in asset management and
banking, and is now in international
development. Going on the record, he
told us: “All these organisations that we
once held in high esteem and revered
tremendously are dying a very slow,
painful death. Now we find ourselves…
slightly stunned, slightly stultified…
We look up and we know exactly what
these people do, as we live in a
transparent world. And we say: ‘You
know what? The emperor has no clothes
and we can do this a lot better.’”
Our meetings with millennials
confirmed that he spoke for many
from this next generation of high-flyers,
who are showing by their career
choices their negative view of a future
in big business or government. Aware
of this, a number of chief executives
said they wish to engage with generation
Y’s concerns. They appreciate how a
greater focus on purpose and value will
forge constructive relationships with
future leaders.
One key explanation for current
leaders’ failures to address unthinkables
is wilful blindness. That is not new or
unknown. More worrying is that, in
many cases, it has yet to be factored into
executive calculations. It is one of the
following key words and phrases that
recurred in our conversations:
l “Groupthink” / “wilful blindness”.
l “Being overwhelmed by multiple
intense pressures”.
l “Cognitive overload and dissonance”.
l “Institutional conformity”.
l “Risk aversion”.
l “Fear of making career-limiting moves”.
l “Reactionary mindsets”.
l “Denial”.
Nearly all those we spoke to
mentioned the need for organisational
change in what many called a “VUCA
world” (volatile, uncertain, complex and
ambiguous). But almost all interviewees
confirmed that a culture of conformity
was the key obstacle to thinking
unthinkables. If mid-level executives
Financial Management | October 2015
THE NEW NORMAL
Chris Langdon
is head of
Reconciliation
through Film
and the former
MD of the Oxford
Research Group
‘A convergence of previously
unthinkable events has left leaders
with a sense of vulnerability that they
have never before experienced’
are not confident in their jobs or are
concerned about career progression,
they are likely to conform to get ahead.
As a result, many organisations are
increasingly afflicted by a “frozen
middle” that “lacks muscle”.
Organisations must create scope to
address the scale of “wicked problems”
that cannot be solved by a leader alone.
This requires new forms of more
adaptive leadership to build resilient
organisations where challenge and
collaboration are built into the culture
and thinking unthinkables is not a
career killer.
“You ask: ‘Is it a new challenge? Is it
serious?’ Yes, I think so,” said the head
of a large international organisation.
“I’ve been at the executive level for 10
years and I’ve worked in this
environment for quite some decades.
It’s by far the most challenging time [for
the organisation] in modern history.”
He went on to describe vividly the
deep internal challenges he faces as a
leader in breaking down silos and
addressing vested interests to create an
organisation capable of surviving in an
increasingly demanding environment.
What do these findings mean for
management accountants? We heard
how the role of management
accountants is changing, as algorithms
increasingly do the counting. But,
while there is scope and a need for
management accountants to take on
a challenge function, they need to
overcome new hurdles in terms of
resourcing and an enabling culture.
CIMA is already leading this debate.
A publication on leadership, in
co-operation with CIMA, will be
announced shortly. The key message
to take away is not just a
recommendation, but a necessity:
the pre-2008 and pre-2014 “thinking”
must be regarded as destructive and
no longer fit for purpose.

20. Financial Management | May 201325 INFORM 25
Source:“CEOsuccessionpractices:2015edition”,TheConferenceBoard.
Illustration by Leandro Castelao
Thedata An improvement in corporate performance and GDP growth in the
US since the recession of 2008-09 has helped to reverse a general
decline in average CEO tenure throughout the noughties,
according to figures from research body The Conference Board.
In 2009, towards the end of the slump caused by the financial
crisis, the average CEO in the S&P 500 stayed in their job for just
over seven years. This was the shortest term observed by The
Conference Board since it started tracking the figure – well down
from the 2002 peak of 11 years. It has rebounded strongly since
then: last year the mean term of office was back to nearly 10 years.
CEOs regain some staying power
Financial Management | October 2015
THE NEW NORMAL

21. Madiba’sprofessor
Mervyn King HonFCMA can trace his work on integrated reporting back to a conversation
with Nelson Mandela. He tells Lawrie Holmes how his quest to reshape corporate
governance in South Africa gave rise to a concept that’s being applied all over the world
PeterSearle
26 Financial Management | October 2015
RETHINKING THE SYSTEM

22. 27
‘When Nelson Mandela
came out of jail, I was
one of the 12 people
he invited to lunch’
T
here is a growing
acceptance among
business leaders that
integrated reporting
(IR) represents an
innovative means by
which their companies
can better measure and communicate
how they are faring. And the benefits
of IR do not stop there: by indicating
clearly how firms are performing on
several fronts, it can also help them to
reduce their environment footprint.
What is less known about IR is that
its roots lie in a friendship between its
architect, Professor Mervyn King
HonFCMA, and arguably the most
respected civil rights campaigner and
statesman of the late 20th century,
Nelson Mandela. King came up with the
concept after being asked by Mandela,
who was soon to be elected president
of South Africa, to redraw the nation’s
corporate governance system for a
society starting to emerge from the
fast-crumbling apartheid regime.
The relationship between King and
Mandela began during the darkest days
of apartheid, when they both practised
law in Johannesburg in the mid-1950s.
After the leader of the banned African
National Congress (ANC) opposition
party was sentenced to life
imprisonment for sedition in 1962,
King continued in the legal profession
until resigning as a judge in 1981 after
a disagreement with the then prime
minister, P W Botha. At that point he
entered the commercial arena.
“I knew Mandela from before he went
to jail because he and Oliver Tambo –
the future leader-in-exile of the ANC,
which eventually brought the apartheid
regime to an end – had an office opposite
the magistrates’ court that I attended
daily as an articled clerk,” King recalls.
“When he came out of jail in 1990, I was
one of the 12 people he invited for lunch,
because I’d been the chairman of [relief
and development NGO] Operation
Hunger while he was inside. From then
on he would phone me from time to time
to discuss issues. We spoke when the
“We had a very special set of
circumstances,” King explains. “Most of
our citizens coming into the mainstream
of the economy had never been there
before, so we had to find something that
was palatable to them.”
The result has been a series of
publications that have not only shaped
the nation’s corporate governance but
also influenced the world’s thinking on
how companies and other organisations
should be led and managed.
“The first report came out in 1994.
The next – which recommended to the
JSE that there should be sustainability
reporting based on the guidelines of
the Global Reporting Initiative (GRI) –
came out in 2002,” he says, explaining
that the work of two US academics,
Allen White and Robert Massie, who
called for better reporting standards on
intangible assets, was a key influence.
“They started to develop indicators that
developed into the GRI.”
King’s views on reporting started
to gain wider recognition at the 2002
United Nations Earth summit in
Johannesburg, where he “spoke about
corporations having to start reporting
on sustainability. I suggested that the
GRI’s guidelines be adopted.”
A subsequent invitation from the UN’s
then secretary-general, Kofi Annan, to
address its own governance standards
prompted King to chair a committee on
the issue. “The UN took the best material
from this and put it in the standards of
its various agencies,” he recalls.
At this juncture the International
Federation of Accountants (IFAC)
Johannesburg Stock Exchange (JSE)
approached me in 1991 about forming
a committee to write new guidelines on
how to direct and manage companies
for our fellow citizens. I told Mr Mandela
that I was very busy, but he said that
I should do it. ‘You’re the right man,’
he told me. ‘But make sure nobody gets
paid [to serve on your commission].’
I did – and that remains one of my
criteria to this day. Everybody, hand on
heart, acts on the King committee in the
interests of South Africa.
As a result, I have always
had the most extraordinary
people on my committee.”
King adds that its work
enabled South Africa
to “move from an
unequal opportunities
society to an equal
opportunities society over
night” in how to direct and
manage businesses.
During this period the
UK had experienced in quick succession
the collapse of the fraud-ridden Bank
of Credit and Commerce International
and the revelation that media tycoon
Robert Maxwell had plundered the
pension funds of his own firms before
his mysterious death in 1991. Such
scandals prompted the government
to appoint Sir Adrian Cadbury, then
chairman of Cadbury Schweppes,
to conduct a review of the financial
aspects of corporate governance in the
UK. The Cadbury report and code of
best practice was published in late 1992.
“Adrian gave me some great advice,”
King recalls. “He told me not to
disband my committee as his had
disbanded, because mine was dynamic.
So I didn’t – and we have met every
quarter since 1991. That has kept the
King committee right up to date and, in
his words, at the forefront of the world.”
Out of the wilderness
The desire to push on with the
committee was fuelled partly by an
understanding of the importance of
reconstructing South African society.
Financial Management | October 2015
RETHINKING THE SYSTEM
‘A company developing its strategy
has to think on an integrated basis…
You can’t separate all these things’

23. ‘To be accountable you have to be
understandable. I developed that
phrase because there was a realisation
in the corporate world that for
years we had been reporting in
an incomprehensible language’
stated that financial reporting alone was
insufficient, because such disclosures
could never reveal 70 to 80 per cent of
what was actually happening in a
company, King says. This led to the
development of sustainability reporting,
but the problem was that firms started
doing this completely separately from
financial reporting.
“One wasn’t talking to the other,”
he says. “The reality was that in
managing a business we’d be dealing
daily with six resources, or capitals. We
wouldn’t put our human capital in one
room, our natural capital in another and
our intellectual capital in a third, with
financial capital in yet another. They’re
interrelated. It was extraordinary that
we were managing businesses on an
interconnected basis, yet reporting in
silos. This, to me, was unthinkable.”
In 2009 the King commission
produced its third report – this time on
the principles of integrated thinking and
reporting. Firms listed on the JSE are
required to comply with its provisions.
The publication of what’s become
known as King III prompted the UN
to call a meeting at its headquarters
in Geneva, inviting the head of the
World Bank, the chairmen of the big
four auditors and IFAC’s president and
chief executive.
“Everybody seemed in agreement
that this was the way forward,” King
says. “The next issue was how to gather
together a ‘who’s who of corporate
reporting’ to see whether they were
on the same wavelength or not.”
Five years previously, HRH the
Prince of Wales had launched the
Accounting4Sustainability initiative,
which talked in terms of “connected
reporting”. Many of its principles
seemed to resonate with those of IR.
“I thought there must be a
connection,” King says. “I took a call
from Sir Michael Peat, the prince’s
principal private secretary, that led to a
meeting between him, Paul Druckman
(then president of the ICAEW) and me
in my capacity as chairman of the GRI.”
The prince went on to convene a
summit that brought together
organisations including IFAC, CIMA,
the World Bank, the International
Organization of Securities
Commissions, the International
Accounting Standards Board, the US
Financial Accounting Standards Board
and the World Wide Fund for Nature.
The eventual outcome of this was the
formation in 2010 of the International
Integrated Reporting Council (IIRC),
of which King and Druckman would
become chairman and CEO respectively.
Warren Allen, who would go on to
serve as president of IFAC in 2012-14,
described integrated reporting as a
“train leaving the station”. He meant
that any organisations which weren’t
on board for its departure would need
to find a way to catch up.
Sustainable imperative
King argues that the need for a body
such as the IIRC has been justified by
a number of global problems.
“Surrounding us are financial crises,
such as that in Greece. And then you
have a climate-change crisis that is
quite extraordinary. Ecological
overshoot – where natural assets are
being consumed faster than the planet
can regenerate them – is a stark reality,”
he says. “The other mega-trend is
radical transparency through the use
of social networks. Do companies really
think that they can still hide things away
in their corporate closets?”
Another reason why IR is gaining in
popularity is the growing acceptance
that companies need to communicate
more clearly with their stakeholders.
“To be accountable you have to be
understandable,” King says. “I developed
that phrase because there was a
realisation in the corporate world that
for years we had been reporting in an
incomprehensible language. How can
you help people understand so that they
can make informed assessments about
the state of a company? An asset owner
has to make an informed assessment
that they should invest their ultimate
beneficiary’s money in the equity of a
company and it’s going to maintain
value creation in a sustainable manner
in the long term. The answer is that a
company developing its strategy has to
think on an integrated basis, so the real
driver is becoming integrated thinking.
You can’t separate all these things.”
ChrisRenton
28

24. participants in
IR networks worldwide
750
<INTEGRATED REPORTING BY NUMBERS>
businesses worldwide
are using IR
1,000
businesses and investors have been
involved in the IIRC pilot programme,
of participants in the IIRC pilot
have an improved understanding
of value creation,
140>
92%
79%
There are more than
reporting improvements
in their decision-making
with
More than
countries
<26
from
With respect to the relationship
between business and society, King
disagrees fundamentally with the late
Milton Friedman, the influential US
economist and founding father of
monetarism. Friedman argued that the
“sole purpose of a corporation is to make
profit without deception or fraud”.
“It seems he was saying that the
corporation is apart from society,” King
says. “I think nothing is further from
the truth. It is absolutely part of society
– and it’s a critical part. Look at the
collapse of Lehman Brothers: that had
a negative impact on two billion people.
Microsoft, on the other hand, is having
a positive impact on two billion people.
Companies have become a critical part
of society. We who steer them have to
appreciate that. We used to ask how
much money a company has made.
Today, the critical question concerns
how it has made its money and what
impact that has had on the economy,
society and the environment.”
King adds that a company’s total value
depends on how its strategy and business
model are mitigating negative impacts
and enhancing positive ones in all
three of these areas. Only by being fully
informed can one make a proper
assessment about value creation, he says.
IR takes off
King says that IR’s concepts have gained
“huge traction” among companies and
investors over the past five years. He
refers to a key moment in the mid-1990s
when research by standard-setters into
plcs listed on some of the world’s biggest
markets revealed that about three-
quarters of the market cap of these firms
was not on balance sheets.
“What were investors putting a value
on? Some thinking showed that it was
based on their assessment of the quality
of a company’s governance and whether
it had a strategy that could result in
value creation that was sustainable for
the long term,” he says.
Wide acceptance of climate change
has also prompted businesses to focus
more on environmental considerations.
“It was towards the turn of the
century that Coca-Cola, for example,
realised that water was critical,” he says.
“It launched a long-term strategy to
reuse, replenish and recycle water.”
The IR movement’s progress towards
the goal of integrated thinking in firms
worldwide has developed over the years.
The focus and objectives of the initiative
have shifted as its understanding of the
challenges facing mankind and view of
the purpose of business in society have
advanced. But King’s ultimate
achievement could well be the saving
of the planet from ecological disaster.
The process started with a number of
conversations with a visionary leader
who believed that a dysfunctional
system could be transformed into one
offering a model of accountability.
Mandela made many inspired decisions
– choosing King as the leading light of
what would become the IR movement
was certainly one of those.
CIMA’s latest annual report follows
IR principles. It can be found at
2014annualreport.cimaglobal.com
In the same bracket: King with Paul Druckman, CEO
of the International Integrated Reporting Council
29Financial Management | October 2015
RETHINKING THE SYSTEM

25. Financial Management | October 2015
RETHINKING THE SYSTEM
MORAL
COMPASS
Chartered global management
accountants have all the tools to
guide their businesses through
an increasingly volatile and
complex commercial landscape,
writes CIMA’s chief executive,
Charles Tilley FCMA, CGMA
30

26. NickCunard
Financial Management | October 2015
RETHINKING THE SYSTEM
ast-developing technology is disrupting our
world like never before. In the slums of Mumbai
thousands of small manufacturers can now bypass
a wholesaler and sell their goods via an app. That
spells disaster for the wholesaler but it presents
a huge opportunity for these micro-businesses.
Such advances are clearly changing how
customers behave, too. They want goods and
services delivered in different ways, so firms need
to be able to meet their changing expectations
quickly if they are not to fall behind their rivals.
Every business is asking itself: “How do I grab these
opportunities?” while at the same time wondering:
“Who am I an opportunity for?”
To survive in such conditions, businesses have to
become more resilient, responsive and effective at
making decisions. Resilient organisations are good
at anticipating and proactively managing change.
They can do this only because they are clear
about their objectives and how these create value.
They are on constant alert for any development
that might limit their ability to achieve these goals.
It may seem harder to make sound choices in
this context, but this doesn’t have to be difficult if
the appropriate methods are used. This means
obtaining the right data at the right time to deliver
the right analysis. CGMAs are ideal for this
navigational role, ensuring that their organisations
can arrive safely at their desired objectives.
The most effective exponents are also business
partners who work with the rest of the organisation
to drive change and create value. They extract all
the relevant information, explain how the
organisation is doing and talk about the
connectedness of the business through its KPIs.
They are a trusted source of intelligence.
Firms in certain sectors – particularly financial
services – need to work hard to win back the trust
of consumers. Integrity is one of the key strengths
of CGMAs. We don’t go looking for information to
justify the choices that leaders instinctively want
to make; we extract the right data and produce the
right analysis to produce the right choices. CIMA is
here to help its members be beacons of integrity.
Our Global Management Accounting Principles are
best-practice standards against which our members
can benchmark their activities and identify areas for
improvement. We’re confident that our principles
are robust and reflect global best practice. We based
them on conversations with 300 professionals
and a survey of 3,000 organisations. We also held
a 90-day consultation, during which we received
400 responses from bodies such as the Financial
Reporting Council and the Chinese Ministry of
Finance. Moreover, we have published a paper
called “The role of the CFO on the modern board”.
This focuses not only on financial security but also
on effective control, which builds resilience.
Joining the dots
Four decades ago, the vast majority of a business’s
value sat on its balance sheet and so that’s where
the accountant’s focus was. Today, that figure is
about 16 per cent for the Fortune 500. Consider IT
giants such as Amazon, Google and Microsoft: most
of their value, their intellectual property, rests in
their people. How do you value an employee’s
talent on a balance sheet? While the balance sheet
is crucial and sets out the cash position, it is
missing the huge intangible value that rests in a
business. For the profession to remain relevant,
it must embrace change that accounts for the
business in its entirety, as opposed to the limited
elements that exist on the balance sheet. This is
where integrated reporting (IR) comes in.
International financial reporting standards tell a
balance sheet story; IR tells a business story. IR has
to happen – there is no other game in town.
To tell your story well, outlining how you are
creating value today and why it’s reasonable to
assume that you’ll create it tomorrow, integrated
thinking needs to be applied. This is key to the
long-term success of any business. But it isn’t always
easy, particularly when different teams operate in
silos with their own KPIs. CGMAs have an important
part to play in helping a business to adopt an
integrated model. They are a single source of truth
upon which KPIs and other initiatives can be based.
As navigators or business partners – working
with marketing, sales, production or the CEO
– CGMAs can ensure that effective decisions are
made. In a disrupted world where the demand for
good decisions is growing all the time, our
profession’s contribution cannot be overstated.
‘IFRS tell a balance sheet
story; IR tells a business
story. IR has to happen’
31

27. ‘Islamic
economics
offers the world
sustainable
solutions that
mitigate against
all the other
riskier, debt-
based artificial
instruments’
While the global economy remains so
systemically based on debt finance and
speculation, another crisis is inevitable at
some point, writes Sheikh Bilal Khan.
The key ethical concepts of Islamic finance
offer a helpful template for thought
leaders seeking to end this vicious cycle
A
growing number of people
are questioning the way
business is done around
the world, considering the
ethical alternatives and
speaking more about responsible
finance. The movement has gained
momentum since the global financial
crisis of 2007-08, which woke everyone up
to the fact that the banking culture known
as “casino financing” was rife.
Bankers went out and got as many
mortgages and debt structures as
possible and sold them off balance sheet
(OBS). They weren’t looking at the
creditworthiness of organisations or
individuals. It was inevitable that the
toxic use of collateralised debt
obligations and derivatives would lead to
a crash at some point. Yet the legal and
regulatory infrastructure still enables
them to work this way. The practices of
casino financing have simply gone under
the radar in the form of various other
OBS transactions.
The law favours debt over equity, in
that interest payments are tax-deductible
as an expense but dividend payments are
taxable. This biased treatment encourages
more and more debt financing, which
can never be healthy for an economy.
It’s fundamentally a systemic and
structural problem – one that challenges
those visionary socioeconomists of the
world who genuinely desire positive
What the West can
learn from Islamic
economic principles
macroeconomics that infuse ethical
values. The time has come when the wider
interests of society should be given
priority over self-interest, because the
latter – in stark contrast to Adam Smith’s
theory – has not led naturally to the
former. Self-interest can easily conflict
with the wider social interest, especially
given the human tendency for selfishness.
Carroll Quigley, the late historian cited
by Bill Clinton as a formative political
influence, wrote in Tragedy and Hope
(Macmillan, 1966): “The powers of
financial capitalism had a far-reaching
aim: nothing less than to create a world
system of financial control in private
hands able to dominate the political
system of each country and the economy
of the world as a whole. This system was
to be controlled in a feudalist fashion by
the central banks of the world acting in
concert, by secret agreements arrived at
in frequent meetings and conferences.”
This zero-sum capitalist system has
failed miserably and the collective fallout
of this monumental failure calls for a
radical rethink. We need a system
whereby social interest and parity of
risk-return sharing give birth to stability
and sustainability. This need is bringing
together both experienced professionals
and aspiring young minds.
The initiative is endorsed by
governments of countries ranging from
the UK to Russia and from South Africa
to China. These powerhouses are
considering ways to resurrect their
economies and they have been enacting
Thinking32 Financial Management | October 2015
RETHINKING THE SYSTEM

28. Sheikh Bilal Khan is co-chairman at Dome
Advisory and vice-chairman of the International
Leadership Programme panel of Mosaic, an
initiative founded by HRH the Prince of Wales to
mentor young people in deprived communities.
An Islamic finance and takaful lawyer, he is the
first sharia scholar to be recognised as a freeman
of the City of London and is a member of Catalyst
UK, a global network of business ambassadors
working with UK Trade & Investment
political and legal reforms to this end.
They may have conveniently found an
ally representing 1.5 billion people –
about 23 per cent of the world’s
population: Islamic economics presents
a discourse that appeals to the full
spectrum of mainstream society.
Islamic economics offers the world
sustainable solutions that mitigate against
all the other riskier, debt-based artificial
instruments. It views money as a medium
of exchange, not as a commodity that can
be traded in itself. One of the big problems
of the current mainstream banking
system is that it enables institutions to sell
what they do not own. Common sense will
tell you that this will lead to a crash
sooner or later. Islamic law stipulates that
one does not sell what one does not own.
The item being sold in any transaction or
financial arrangement must exist and be
in the owner’s possession.
It came as a pleasant surprise to me
when some governments banned
practices such as short selling in 2008 at
the height of the financial crisis. Short
sellers borrow stock from a broker, sell it
and wait for its price to drop so that they
can purchase that stock at a lower price.
Unfortunately, it was only a temporary
ban in most cases.
Economic stability and sustainability
will come about only if there is root-canal
treatment to prevent the use of debt as a
so-called financial instrument. None of
these instruments, institutions and
players can be good for the economy and
indeed the well-being of society.
Islamic economics sets out principles
and practices that hold all parties to
a transaction to account. There is the
concept of stewardship, the requirement
for risk and return to be shared and the
proscription of any activity that could
be harmful to others. It does not argue
against making a profit; it simply argues
against making a profit that is detrimental
to society, whether that’s through
profiteering, hoarding or engaging in any
other destructive financial measures.
Islamic economics questions the role
of money as a commodity, the use of
debt-based instruments that give rise to
interest payments (an unfair distribution
of wealth) and all practices involving
speculation and uncertainty. Alongside
this, it rules out investment in industries
such as the arms trade and gambling,
to name but a few. Further information
about its principles can be found in
the popular book by Tarek El Diwany,
The Problem With Interest (Kreatoc, 2010).
Islamic economics contends that it’s
crucial that everyone comes to a
transaction looking at the bigger picture,
including its long-term impact on society.
If you remove the Arabic terminology
from all of this, Islamic economics makes
sense to those in mainstream society who
are interested in ethics and value-based
economics, rather than the capitalist view
of making money as a goal in itself.
The economic revolution will take
place only when the legal architecture
facilitates the same through measures
placing equity and debt on a level playing
field, if not tilting things in favour of
equity. There must also be a re-evaluation
of the policy of money creation by banks.
Agents of positive economic change
need to muster the confidence to act
collectively now – otherwise, history
will never forgive them. As Plato said:
“We can easily forgive a child who is
afraid of the dark. The real tragedy of
life is when men are afraid of the light.”
The tragedy is too grave for us to be
afraid of the light of the positive
economic revolution.
TrentMcMinn
33Financial Management | October 2015
RETHINKING THE SYSTEM ‘Islamic economics contends that it’s
crucial that everyone comes to a
transaction looking at the bigger picture’

29. Lady Judge is the first female chair
of the Institute of Directors in its 112-year
history. Lawrie Holmes seeks her
views on the challenges facing its
34,500-strong membership
Leading
lady
34

30. JaneMingay/RexShutterstock
B
arbara Thomas, Lady
Judge, is uniquely well
placed to assess the
challenges facing the
constituents of the
organisation she heads.
The first female chair
of the UK’s Institute of Directors (IoD)
has amassed a wealth of board-level
experience in many fields, giving her an
unrivalled insight into the decision-
making concerns of its members, who
range from sole traders all the way up to
FTSE-100 directors.
The New Yorker, who has dual UK/US
citizenship, became the youngest person
ever to be appointed to the US Securities
and Exchange Commission, having
made her name as a corporate lawyer.
She also broke new ground as the first
woman to become an executive director
of a London merchant bank (Samuel
Montagu & Co). Judge had a short stint
as an executive director of News
International before accepting a string
of non-executive board positions in both
the private and public sectors. Having
chaired the UK Atomic Energy
Authority, she remains chair of the
Pension Protection Fund and continues
in her role as a business ambassador for
UK Trade & Investment.
Judge observes that corporate leaders
are having to consider the views of more
stakeholders than ever before, given that
a range of new issues are forcing their
way on to the boardroom agenda and a
growing number of interest groups are
pressing them to explain their approach
to these emerging risks.
“Two themes stand out for me: the
growth in the power of stakeholders and
the increasing demands placed on
boards for real-time reporting and
instant decisions,” she says. “In theory,
it’s healthy that so many groups –
including NGOs, governments and the
general public – are taking an interest in
the private sector. Boards must be
prepared to respond to them, but there
is a balance to be struck in addressing
the concerns these groups have while
still delivering value for shareholders.
Cyber-security should be a priority, for
instance, but directors are already facing
almost insurmountable pressures on
their time. How can we ensure that they
give proper attention to all of the issues
they are expected to consider?”
Judge notes that the quality of
corporate governance has been under
the microscope ever since the global
financial crisis of 2007-08. “Decisions on
boardroom appointments, executive
pay, takeovers, corporate structure and
even capital allocation have become fair
game for criticism. There are numerous
ways in which businesses can react.
These range from bringing outside
interests into the boardroom through
non-executive appointments to letting
employees sit in on remuneration
committees. No single response will be
right for every company, but there’s a
plethora of innovative options at their
disposal,” she says.
A bigger challenge is the rise of
real-time reporting, according to Judge,
who has also served as a member of
IFAC’s International Ethics Standards
Board for Accountants and deputy chair
of the UK Financial
Reporting Council.
“Simplification is
almost as important
as transparency when
it comes to company
data. While it is
important to know
the minutiae and
various requirements
of long-term
incentive plans, for
example, the ‘single
figure’ remuneration details that British
companies are now required to provide
are of much more value to outsiders
looking at executive pay,” she says.
Referring to how boards are
responding to these new pressures,
Judge says: “When I took up my first
non-executive board position in 1994,
managers took big decisions by going
through a process of careful deliberation
featuring lengthy phone calls, strategy
meetings and consultations. Sometimes
I fear that, as the pressures of real-time
reporting grow, executives are being
pressed to make more and more
decisions in hurried email exchanges
without going through the same
diligent process. For boards, this means
longer meetings and weightier board
papers, which may mean that less
attention is paid to important details,”
she warns.
Judge insists that all papers seen by
the boards she chairs are kept to a
maximum of four pages. “If directors
cannot be told what they need in four
pages, it means the executive who has
written the paper has not given the
issue enough thought. The shorter
the paper, the more likely it is that
important information will be absorbed
and retained by busy non-executives.”
When it comes to risk management,
Judge says that the financial crisis
highlighted the need for directors to
have a finger on the pulse at all times.
“As chairman of the enterprise risk
oversight committee at Magna
International [a manufacturer of car
parts and one of Canada’s biggest
companies], I know that more and
more of a director’s time is being taken
up by the issue, as considerations on
risk form a key component of all major
board decisions,” she says.
The UK corporate governance code’s
new requirement on firms to make
viability statements will have an impact
in this area, according to Judge, who
believes that companies will have to
look much further than a year ahead
and make a judgment about their
ongoing health. “This is a significant
departure and will demand more
attention from boards and auditors,”
‘Directors are already
facing almost
insurmountable
pressures on their time’
‘Two themes stand out for me: the
growth in the power of stakeholders
and the increasing demands placed
on boards for real-time reporting’
35Financial Management | October 2015
RETHINKING THE SYSTEM

31. Reuters,RexFeatures
she predicts. “Banks are required to
have risk committees and there is wide
agreement that boards should have an
acute understanding even of external
risks and factors beyond their control.”
When asked whether she believes
that boards are yet diverse enough to
comprehend the sheer breadth of
challenges facing their organisations,
Judge points out that encouraging
headway has been made, at least in the
UK, in boosting the number of female
directors. But she stresses that much
work remains to be done in this area.
“Although more women may have a
seat on the board, depressingly few
hold the purse strings. Fewer than 10
per cent of executive directors are
female,” she observes. “At the next level
down, men are nearly five times more
likely to hold a role reporting directly to
the board. There is still progress to be
made on this front and we must also
note that diversity does not stop with
gender: most of the men on boards are
white, over 50 and university educated.
They follow the traditional route
through the finance department to CFO
and CEO into non-executive roles and
chairmanships. As long as someone is
asking the probing, difficult and
sometimes plainly obvious questions
of executives, this system can work.
But the easiest and most natural way to
ensure that this is happening is to have
a mix of experiences, backgrounds and
opinions in the boardroom. Three-
quarters of the IoD’s members agree
that a wide range of views at senior
level is a key element of success.”
Judge cites an example of the value
of diversity from her own experience:
“On joining the board at Friends
Provident in the mid-1990s, I was the
only woman, but I was also an
American and the youngest person at
the table – the recruitment panel would
have been hard pressed to
find somebody further
outside ‘the club’. In one of
my first meetings the senior
managers were telling the
directors why we should sell
the company. When I asked
why a 150-year-old firm
needed to be sold so
urgently, I was told that the
insurance industry was
consolidating, so we
would be wise to ‘pick a
dancing partner’ before they were all
taken. Quietly, but firmly, I said to the
all-male room: ‘Dancing partners are
one thing I do know about – you
probably won’t have to wait too long for
another to come along.’ Then I argued
that we should become a buyer, rather
than a seller. After a lengthy discussion,
the others agreed. We went on an
acquisition spree over the next five
years and that proved to be a good
move. As an outsider, I’d been able to
ask the simple questions that the others
were overlooking.”
Judge points out that 70 per cent of
the IoD’s members are from small and
medium-sized businesses. While they
face a different set of challenges from
those of their larger counterparts,
“the way they operate is not so different.
Small firms and start-ups might not
have formal boards, but they do have
informal non-executive networks of
friends, relatives, business contacts and
mentors whom they can call on to help
them work through challenges and
scope out opportunities.”
She adds that skills gaps, regulatory
complexity and problems accessing
finance are “issues that IoD members
grapple with every day. I want to apply
my experience at some of the world’s
largest – and smallest – companies to
help them. Big businesses set the
standards for small ones to follow, so
I want to ensure that the former have the
right priorities. The IoD recently
welcomed Google’s decision to create a
new holding company, Alphabet, for
instance: this shows that tech giants do
place an importance on corporate
governance and the concerns of
investors – a good message to send to
the UK’s thriving start-up scene.
“Through the IoD’s contacts in
government, I will support our efforts
to ensure that the UK is one of the best
places in the world to do business –
whether that is by asking firms to hire
more female directors, by developing
programmes to address skills gaps or by
ensuring that small businesses get paid
on time.”
LADY
JUDGE CBE
1978-80 Partner in US
law firm Kaye Scholer.
1980-83 Commissioner
on the US Securities and
Exchange Commission.
1983-86 Executive
director at UK investment
bank Samuel Montagu.
1986-90 Senior VP at
Bankers Trust Company.
1990-92 MD of US asset
manager Cramer
Rosenthal McGlynn.
1992-94 Executive
director, legal affairs, at
News International.
1994-2009 Non-executive
director and then deputy
chair of life insurance
firm Friends Provident.
1996-2000 Chair of the
Whitworths food group.
2000-05 Executive chair
of Private Equity Investor.
‘Considerations on
risk form a key
component of all
major board decisions’
2002-10 Director and
then chair of the UK
Atomic Energy Authority.
2004-07 Deputy chair
of the FRC and non-
executive director of the
UK Department for
Constitutional Affairs.
2007- Non-executive
director of Magna
International, a Canadian
car parts supplier, and of
Bekaert, a Belgian steel
wire manufacturer.
2007-09 Member
of IFAC’s International
Ethics Standards Board
for Accountants.
2007-11 Non-executive
director of UK recruiter
Robert Walters.
2008-12 Deputy chair of
Australian uranium miner
Forte Energy.
2010-13 Board member
of Statoil.
2010- Chair of the UK
Pension Protection Fund.
2011- Chair of the Energy
Institute at University
College, London, and
non-executive director at
Liquidnet Holdings, a US-
based trading network.
2015- Non-executive
director at Lixil, a
Japanese building
materials group, and
chair of the IoD.
37

32. LEADERSHIP
INCLUSIVE
38

33. Financial Management | October 2015
THE VALUE OF INCLUSION
Illustration by Drew Tyndell
Introducing our section on the value of
inclusion, Lawrie Holmes explains why
inclusive leadership matters to businesses
‘Integrated reporting is the
only form of bringing all the
relevant information together’
Download this
month’s FM
app to see a video
presentation
illustrating how
fartheinclusivity
debate has come
39
mart organisations have long woken up to the fact
that, if they want to be around in 50 years’ time,
inclusivity – and inclusive leadership – is critical.
Inclusive leadership is vital to business. For
businesses to succeed, they have to harness all
the talents of all their people, irrespective of their
backgrounds. This enables them to be valued as
part of the communities they serve.
The articles that follow in this section offer
compelling reasons as to why companies with
a truly inclusive approach are more likely to cope
well with the stream of challenges posed by
the “new normal” business environment – and
why they are also more likely to capitalise on
emerging opportunities.
In today’s volatile, uncertain, complex and
ambiguous (VUCA) world, the risks and
opportunities for value creation are changing
radically. A short-term focus on generating returns,
based on a narrow view of economic activity,
ignores the dynamic context within which
businesses must operate. Creating value in the
short, medium and long term requires this full
understanding, which is why management
accounting is critical for a business to succeed.
Businesses play a unique and transformative role
in creating value and, in so doing, developing and
harnessing technologies and new methods that are
transforming our lives. The sustainable success of
a business hinges on the interdependency of the
economy, society and natural environment within
which it operates.
“In this VUCA world, business success
requires more than a focus on delivering short-
term financial returns,” says Tony Manwaring,
CIMA’s executive director of external affairs.
“For businesses to be sustainable in the long term,
they create value by linking what they do in the
economy as part of the society they belong to
and the natural environment. They do this
through relationships – people working together
across geographies, cultures and borders to
co-create value.”
The communication of this value is only useful
if it is trusted and can be effectively assessed
and interpreted to inform decision-making.
And best-practice decision-making is championed
and underpinned by the power of CIMA’s Global
Management Principles, which rely on an inclusive
approach and culture.
Leaders today need all the relevant information,
recognising that the financials tell only part of the
story when other areas, such as reputation and
relationships, are becoming increasingly
important. Thus integrated reporting (IR) becomes
essential as a means of explaining an organisation’s
value-creation story to its stakeholders. Business
works not in isolation but as part of a wider society.
Business can’t create value unless it recognises its
key relationships.
“IR is more than another way of reporting on
performance,” Manwaring explains. “It is the
only form of bringing all the relevant information
together to express and understand full value. It
ultimately enables businesses to better understand
their value creation.”
It’s essential that integrated and inclusive
thinking takes place up front. Without an inclusive
approach, myopic information will be gathered. It
will not include the full depth and breadth required
by business leaders to take informed decisions.
This in turn will lead to narrow decisions, because
the insight needed up front has to be based upon
shared understanding and inclusion.
Inclusive leadership is an important
theme that CIMA is keen to explore.
As Simon Langley, National Grid’s UK
head of inclusion and diversity, says in
“Sustainable people” (page 42), while
diversity is about getting the mix of people
right, “inclusivity is about getting that
mix to work well”. From a management
accounting perspective, it’s about getting
the mix to understand and unlock the full
value of your business model. Ultimately,
it’s about co-creating better business and
a better society for all concerned.

34. KieranDodds
The financial services industry has faced
intense criticism and scrutiny ever since the
crisis that shook the global economy to its core
in 2007-08. Now that the practices that caused
the disaster have been laid bare, the focus has
turned to how leadership teams in banks either
encouraged, or turned a blind eye to, the culture
of groupthink and short-termism that allowed
many of these dangerous activities to flourish.
But not all leaders in this much-maligned
sector are cut from the same cloth, of course.
Take Katherine Garrett-Cox, chief executive of
fund manager Alliance Trust, for instance. She
stands out as a CEO who is making great strides to
develop a progressive culture in her organisation.
Garrett-Cox is conspicuous in other ways, too:
as one of only nine female chief executives in the
FTSE 250, she has been in the job for more than
Having smashed the glass ceiling in
financial services, the CEO of fund
manager Alliance Trust is shattering
stereotypes about the culture of her
industry. Katherine Garrett-Cox tells
Lawrie Holmes how diversity helps
to prevent groupthink in her firm
‘Women
ask some
of the best
questions’
40 Financial Management | October 2015
THE VALUE OF INCLUSION