Taking a global view: a measured assessment of the way ahead

Citation

Bruce, R. (2002), "Taking a global view: a measured assessment of the way ahead", Balance Sheet, Vol. 10 No. 3. https://doi.org/10.1108/bs.2002.26510caa.001

Taking a global view: a measured assessment of the way ahead

Taking a global view: a measured assessment of the way ahead

We are all adapting to a post-Enron view of the world. The great cathartic collapse of the energy giant sent shock waves running in all directions. But now is the time to draw more measured breath and really assess the way ahead. The worlds of asset and liability management, of risk management and of corporate governance have all suffered a severe jolt at the very least. For many, particularly those within the Arthur Andersen orbit, the world as they knew it has more or less come to an end. Everywhere individuals and organisations are trying to factor in the way that things have changed and adapt their course to the future.

That is where this issue aims to assist. Its central section provides an overview of actions to take and predictions to bear in mind.

But first up is our long-serving columnist, Dr Bill Robinson of PricewaterhouseCoopers. He provides the strategy that a onetime advisor to Chancellors of the Exchequer should provide. He takes the long view. He sees the glimmerings of economic recovery and reckons that this is the time to look at expanding the amount of debt on corporate balance sheets. And he also wonders whether this might not be the time to be exchanging short-term debt for long-term debt. "Today's apparently expensive long-term borrowing will then become tomorrow's unrepeatable bargain", he suggests.

Our second columnist in this issue, Peter Mayne, has laboured long and hard in the creation of the new financial reporting language known as XBRL. "Financial statements would dissolve into a dust of electronic data allowing quick and easy access for the capital markets of the world", he predicted. And now, post-Enron, he points out that "the urgent message on the street is that it is not just a matter of what you disclose, but how you disclose it". XBRL could transform this.

Then we start our special section on global understanding with Jeremy Scott. He is Global Head of Financial Services at PricewaterhouseCoopers and has been pioneering the way that economic capital systems have become, as he puts it, "increasingly core to financial institutions' decision-making". With the help of a survey which his firm has carried out, he shows how it can be made to work as a risk management system across entire groups. "Economic capital", as he concludes, "is the only tool that allows managers to compare performance across the company and make the best investment decisions".

Next we hand over our pages to Howard Davies, the head of the UK's main regulatory body, the Financial Services Authority. He provides an overview of how corporate governance is developing on a worldwide basis and points up the differences between how it is developing in developed countries and in emerging nations. He emphasises five important areas which have increased in importance following the great corporate events of the last year. "People are more important than processes", is the first, followed closely by shareholder accountability, the effectiveness of audit, disclosure and transparency, and regulatory discipline. In each of these he updates our thinking to take account of the changes the global corporate system has seen.

Then the great investment guru, Andrew Smithers, provides some of his views and predictions on where the USA and Japan are heading. In a report on a talk he gave recently to the UK Asset and Liability Management Association we reveal that judging by his instincts, his reading of the statistics and trends, and his economic assessment there should be more gloom to come. "I expect inflation to return to the USA", he says. "I don't know whether it will be the result or the cause of the next recession".

Having provided an overview of the global outlook we next turn to Michael Mainelli, the founder of the consultants, Z/Yen. He takes the view that banks are increasingly smug about the way that they manage their risk. Being a good iconoclast, what he wants to do is break through that smugness by suggesting that the banks' cousins in industry have produced a much more effective approach to operational risk in recent years and that the banks should learn from this. "Banks", he concludes, "should seek out their strongest industrial clients and learn about operational risk from them".

After that we turn to the world of insurance companies. The steady global harmonisation of financial reporting rules will bring change to everyone. The harmonisation of rules in Europe by a deadline of the year 2005 has concentrated minds. In a thought-provoking article Nigel Masters and Eric Dupont of PricewaterhouseCoopers assess what all this will mean for the insurance business. As everywhere else, great change is in the air.

One of the after-effects of the post-Enron era has been a flight to assurance. People want, more than ever, to ensure that their actions have consequences which can be contained. There is a need for effective corporate governance. There is a need for people who can tell you that all is well and that you can sleep soundly at night. Richard Raeburn has just become the chief executive of the Association of Corporate Treasurers in the UK. His argument is that in times of high risks the corporate treasurers become a vital source of information for the non-executive directors. "In today's risk environment", he argues, "the treasurer emerges as the 'non-executive' executive".

And finally, greater risk brings more uncertainty in the world in which we all work. So we asked the specialist recruitment consultants, Robert Walters, to come up with a survey of remuneration and salaries for the wide variety of work that constitutes the world of asset and liability management and risk management. It makes for interesting reading. They describe it as having been "a difficult and somewhat interesting year". You can say that again. But we hope that Balance Sheet has equipped its readers to survive and prosper.

Robert BruceEditor