Turn to your weekend FT , you happy capitalists, and you will find two stories relating to monopoly of the big four accountants. The first is a comment piece by John Plender where he looks at why Government has been so timid in challenging the big four (too few to fail). The second reports John McDonnell and the Labour party appointing Prem Sikka to conduct a fundamental review of UK governance.
This at a time when we await the composition of the Kingman review of the FRC , a review set up to consider how the stakeholders of Carillion were failed – especially by EY, KPMG and Deloittes (PWC have arrived late to the party),
The catalyst for this twin pronged attack on corporate accountancy is of course Carillion and the catastrophic failure of auditors to value contracts at that organisation correctly. As Plender comments
Overall, this quartet of accountancy behemoths collectively received £51.2m for services to Carillion in the 10 years before the collapse, a further £1.7m for work on the company’s pension schemes and £14.3m from government for work relating to contracts with Carillion. Small wonder the MPs concluded that this was a “cosy club incapable of providing the degree of independent challenge needed”.
I have sat in separate meetings this year and heard partners of these firms boast of their market coverage. There seemed, at least among the people I was talking with, no conception that they were reinforcing the perception of such a club.
And this is the problem. These firms now have offices which resemble self-created campuses. Consultants leave the offices of their clients in taxis and arrive in their offices in taxis. They are not conversant with how the outside world sees them, are not accountable to any governance but their own and they carry on their lucrative trade without challenge.
The damning parliamentary report on Carillion was most damning about the big four’s failing to recognise its own fallibility.
Accountancy practices are not alone in remaining unchallenged. Until the FCA’s Asset Management Market study which culminated in the referral of a small group of investment consultants to the Competition and Market Authority, the actuarial profession, at least its pensions wing, had been practically self-regulating.
It had created and maintained a system of corporate pensions that was and is deeply dysfunctional and had denied the necessary innovation to the market needed for ordinary people to get second pillar pensions commensurate to their needs. They had not set out to do this, they had simply created their own “cosy club incapable of providing the degree of independent challenge needed”.
Who can create the independent challenge?
I am a card carrying member of the Tory party and not someone who naturally supports trade unions. However, I am increasingly finding myself siding with unions on pensions issues.
I spoke last week at a UCU event where I found my position aligned with the lecturers of universities providing an independent challenge to the position adopted (on this occasion) by the employer – Cambridge University. UCU are a union representing members of the USS.
I spoke a couple of weeks back with Accord , who are working with their employers to protect members of the LBG, TSB and other banking pension schemes from scams. Again I found my interests aligned in challenging this time, scammers – and the historically weak regulation that has allowed them to prosper,
And I tip the hat too to Prospect, who are leading the Trade Union’s challenge to the net pay DC system which is denying many vulnerable low-earners the Government Incentive into their workplace pensions, critical to the success of their participation in auto-enrolment.
Add to this the work of the CWU with Royal Mail in establishing a new kind of collective pension capable of filling the gaps left by RDR and created by the Pension Freedoms. Further the work carried out by Unison with the LGPS in promoting a new way of assessing value for money in fund management and the ongoing work of Unite – the largest union, in promoting good practice throughout corporate pensions and you get an idea why I am a big fan of unions.
Unions can provide and are providing the independent challenge to the received ideas of the pension industry and are greatly to be thanked for it.
I have been brought up to believe that our Trade Unions are in the pocket of the Labour Party and funded by undemocratic closed shop arrangements. I no longer believe this. Instead I see Trade Unions fighting to prove to their members that their subs are value for money. If the Unions are bankrolling the Labour Party or vice versa, I care not.
Relative to the lack of independence in the sectors that dominate where I work – accountancy, actuarial and fund management, they are the only bodies who are providing independent challenge to stop the avalanche of transfers, the net-pay scandal, the corporate and pension failures at Carillion and others, the binary risk transfer from DB to DC and the raping and pillaging of all and sundry of the funds we use.
You don’t have to sleep in red bed sheets to see that challenge is needed and you don’t have to have a degree in political economics to see that this market will not function properly unless we have voices like Plender’s and McDonnell’s and the Trade Unions, calling for better.
A necessary agent for change
Unions aren’t perfect, but who is? Unions are changing but they’ve still got a long way to go. I respect my friend David Harris, who grew up a union man in Australia when he posts to me on Linked in
Unions in the UK have a traditional love affair with DB and inter- generational transfer mechanisms. The gold plated DB for the union officials and maybe the workers.
Unlike the women led trade union movement in Australia during the 1980s who advocated increased coverage and compulsion around DC. That was the deal – you want compulsion do something about coverage.
Women had more and longer career breaks then so DB or the collective quasis were banished eventually. Women union officials in Oz wanted increased coverage and contribution levels for all workers. Good luck with that – bringing CDC to the people
That is a good and fair challenge to CDC – which should not be allowed to become a reward for the included. If Australia teaches us that CDC rewards men to the exclusion of women, then we need to look at this and learn from it and do better in the UK.
Unions are global and capable of learning lessons from abroad and if Australian Unions challenge the CWU and others to ensure that RM’s moving to CDC is not gender exclusive, then bring it on.
The asymmetry of wealth is aligned to an asymmetry of information and an asymmetry of power- meaning that inequality naturally increases. Unless – that is – that it is subject to independent challenge.
Just as the big four accountant need to be challenged, so do our big three actuaries in pensions. Just as the FRC needs shaking up, so do tPR and FCA.
Unions are – in this – a necessary agent of change and they deserve our respect and support for the work they are doing.