Changing the agenda in 2003

Citation

Bruce, R. (2003), "Changing the agenda in 2003", Balance Sheet, Vol. 11 No. 1. https://doi.org/10.1108/bs.2003.26511aaa.001

Changing the agenda in 2003

This issue, the first of a new year, reflects the almost seismic change that has occurred in the world of asset and liability management and of risk management. A year ago we in the throes of Enron, WorldCom and dozens of corporate disasters in the US. The global effect of that crisis of confidence and governance at the heart of the biggest economy in the world has been huge. American financial reporting rules, their legal system and investment banking system were found sorely wanting. Their regulators are still, to some extent, in denial over this. They cannot believe that having trumpeted the virtues of their systems for so long they should have proved not just hopelessly inadequate but in many ways to have actually contributed to the problem.

This issue of Balance Sheet seeks to illuminate these concerns. First our columnists, Bill Robinson and David Lukeman, look at different aspects of the way ahead. Robinson takes a look at new research which is likely to have a considerable effect on the way investors view the equity markets this year. Lukeman looks at the risk management of corporate strategy as more and more large organizations strike up strategic alliances.

Then we come to the heart of the issue. Late last year David Damant, doyen of the analyst world and a veteran of financial reporting skirmishes over the last few decades, gave a talk to an invited audience at the heart of the City of London. It is the full text of that talk which we reprint here. Damant ranges freely over the history of financial reporting and, in particular, the development of the ways in which clarity and a conceptual framework have been sought. It is a tour de force of the man's skill at making a complex and at times labyrinthine subject crystal clear. And given the battle which has been raging between the awful consequences of the American obsession with a rule-based system and the principles-based system which more successful corporate governance regimes have adopted it is extremely timely.

Next Andrew Lennard, one of the shrewdest of thinkers at the UK Accounting Standards Board, provides insight into what investors should be looking for in the process and how you deal with valuing assets and liabilities. Professor Arlette Wilson and Professor Walter Campbell then examine exactly what did happen at Enron with its hedging policies. They show clearly where the roots of the company's downfall lay. Next we keep the issue of hedging in focus. Bridget Barker and Bridget Hui from law firm Macfarlanes look at how hedge funds are working and how regulation can deal with them.

Risk is at the heart of all this. Neil Gerrard has been voted one of the top 50 global "white-collar crime" lawyers in the world. His task in his article was to show how recent research by the London School of Economics suggests that company directors are failing to deal the growing burden of regulatory risk. He provides a guide to ensure that this failing is reversed and he suggests that there is competitive advantage to be gained by so doing.

This theory is further developed in the next article in this issue of Balance Sheet. David Watts of KPMG shows that research is now showing, quite understandably after last year's events, that investors are increasingly attracted to companies which can show clearly that good governance is one of their greatest priorities. He then writes about how the qualities required should be embedded into a corporate structure.

The next article takes the whole issue still further. David Shaw writes on risk adjusted performance measures and capital allocation. In an extensive survey of the whole area he suggests that the goal of simultaneously measurement and management of risk and profitability and performance can be achieved.

Regulation remains at the heart of our readers' concerns this year. The slow process towards a system of risk-based supervision in the UK is likely to be seen as a template for the world's markets. Patrick Fell and Mairead Devine of Pricewaterhouse look at what is known as the integrated prudential sourcebook promulgated by the Financial Services Authority. They show how it will work and how financial services organizations should be preparing for the process of implementation.

And finally Michael Mainelli joins our team of columnists. Famously iconoclastic Mainelli is the founder and executive chairman of Z/Yen, the free-thinking consultancy. He has contributed several fine articles to Balance Sheet in recent years and now has his own regular slot to provoke and inform readers. In his first column he takes the issue of investment in smaller quoted companies and wonders why small is no longer considered quite so beautiful.

Robert BruceEditor