The irresponsible bosses should face court. Others, we accountants included, must accept we’ve erred.
Richard Aitken-Davies, President of ACCA writes in The Guardian
Remuneration and incentivisation packages for senior figures within the banking world have rocketed, but these rewards have become too closely linked to short-term, easy-to-manipulate financial metrics. The traders of derivatives want to have their “profits” recognised straight away in the employers’ accounts and, thus, in their annual bonuses. But bonuses need to be related far more closely to long-term financial performance and, importantly, to movements in cashflow, rather than profitability. Rewards should not be paid out until proceeds have been banked.
The roles of the chairman and chief executive are ultimately ones of accountability – to shareholders, to customers, to staff and, whether they like it or not, to government, the taxpayer and society at large. But our increasingly well-defined principles of corporate governance have not prevented this crisis. We therefore need to open our thinking to alternative models and, in particular, to the role and effectiveness of independent non-executive directors.
If directors ignored bad habits, if they accepted complacency after a prolonged bull market then they should be held accountable. If they have overseen failure, and allowed greed to flourish then they are accountable for this, too.
Naivety has also played its part, with well-meaning people succumbing to the seductions of advanced risk management techniques at the expense of common sense. And perhaps we accountants haven’t said no enough, either.
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