Analysis

Happy Mondays

Its been a bad few weeks for accountancy’s most cumbersome brand name, PricewaterhouseCoopers.

After spending £75m, PwC has decided – to general surprise – to rename its consulting arm “Monday”. Ignoring the views of many that the first day of the week is associated with depression and lethargy, brand consultants, Wolff Olins, claimed that Monday provided thoughts of new starts and fresh energy.

The choice of new brand name is accompanied by an equally unexpected slogan. “Sharpen your pencil, iron your crispy white shirts, set the alarm clock, relish the challenge, listen, be fulfilled, make an impact, take a risk,” says “Monday”.

The serious message behind the rebranding is probably that separating consulting arms from the accountancy firms may not be enough, post-Enron. The calculation may be that the necessary fresh start is that of distancing the consulting arm from years of controversy.

Greg Brenneman, president and chief executive officer of PwC Consulting, said: “The PricewaterhouseCoopers brand has given us a great heritage. Our new name – Monday – is exactly what we want it to be as we create our new business: a real word, concise, recognisable, global, and the right fit for a company that works hard to deliver results. Monday is a new identity on which to build our company’s future, and it will have meaning and stand for something: real people, real experience, real business …and that means real results.”

To promote the new brand, and to generate enthusiasm behind the break-up of the empire, PwC has launched a new website, www.introducingmonday.com.

But a cynical reception for the Monday brand has not been PwC’s only name problem. The firm has taken a case to the international arbitration body determining rights to web domain names – and lost. The hallmark www.pwc.com is now recognised as being legitimately used by a collection of businesses selling professional water crafts, or PWCs for short.

The decision to support PWC and not PwC was made by the World Intellectual Property Organisation (WIPO). While it accepted that PwC had registered the three letters as its trademark, it was apparently swayed by the web domain address being held by another organisation before Price Waterhouse merged with Coopers & Lybrand. WIPO’s judgement said that the accountancy firm had failed to prove bad faith on the part of the domain site holders, nor that they had universal use of the phrase “pwc”.

PwC’s case was that the organisation currently holding the domain name is a Hong Kong business, Ultimate Search, which is “intentionally misdirecting Internet users”. A spokesman for PwC in the United States told student accountant that the firm “disagreed” with the WIPO findings and had filed a complaint with the district court in the Northern District of California, alleging cybersquatting and unfair competition.

Should PwC lose again, it could be forced to buy a name which it believes is its right. The significance of the PwC case is that it is unusual – in the vast majority of cases WIPO has found in favour of major multi-nationals in defence of domain names similar to their registered trademarks. Indeed, WIPO has been criticised for being too “pro corporation” and has frequently supported major companies against smaller businesses with legitimate similar names.

The lesson of the PwC case is that any business involved in merger discussions or considering changing its name needs discreetly to purchase relevant web addresses before any deal is concluded. Failure to do so could be expensive.

Post-Enron: Post-Andersen

If the collapse of Enron was the earthquake, the aftershocks seem likely to continue for years to come. Along with Enron itself, the biggest victim is the historic firm of Andersen: the Big Five is now the Big Four.

The conviction of Andersen – after the evidence of star witness and former partner David Duncan – for obstruction of justice may confirm the view of many of the accountancy profession’s critics that auditors became too involved with non-audit services. Whether that perception was right or fair, the major firms have been forced to split audit and consultancy and most commentators expect a much tougher regulatory regime to be unveiled. That initial post-Enron focus on standards may now shift to greater consideration – again – on how the profession is policed.

It seems likely that a mini industry might now be created, in which many recent business collapses may be re-evaluated. After a successful prosecution over Enron, it seems inevitable that the microscopes will be out examining the history of others.

Distrust of corporate America is at its peak – with hundreds of thousands of workers losing pensions savings because of the failures of over-hyped companies. The anger of the pension fund members may be a political force for years to come, generating further scrutiny of corporate governance and audit.

Ann Robinson, visiting professor of the European Centre for Corporate Governance at Bournemouth University and former head of the National Association of Pension Funds, believes that following the Andersen and Enron cases, corporate governance as much as audit will be re-evaluated in the United States. She argues that the failings in the two disciplines had a common cause – the USA’s very rule-based approach.

Robinson told student accountant that companies and auditors should go back to fundamental principles. It was as important that directors ensured their companies took decisions effectively as it was that auditors ensured the accounts presented a true and fair view. “Corporate governance is going to be more and more of an issue,” Robinson predicted. “Corporate governance has to focus on principles of decision-making.” She said that directors should first decide how they took decisions and write it down. The failure of directors to take this approach was a key factor in the problems faced today, Robinson added.

Revenue on-line service collapses

The UK Inland Revenue suffered severe humiliation when its much vaunted on-line self assessment system had to be withdrawn for 10 days, after it emerged that some visitors to the website were able to see confidential information of others who had previously filed their returns.

Even after the system was restored, elements of the service were still not available because of fears that information might not be secure. In particular, the Revenue’s SA On-line Tax Return software could not be used. Some other on-line filing software was still usable. It appeared that the loss of security only arose when those filing returns on-line used a particular – but not named – Internet service provider.

Chas Roy-Chowdhury, head of tax at ACCA, pointed out that more than 90% of the people who filed on-line used the Revenue software. He called for an extension to the initial 30 September filing deadline to give taxpayers more time to submit their returns for calculation.

“After sending out letters encouraging taxpayers to file on-line, they should write a letter of explanation to restore the credibility of the system,” said Roy-Chowdhury. “They’re trying to keep a lid on the problem by saying only 10 people have reported faults. What about the dozens who may have logged in and logged out? Instead of putting a gloss on the problem, they should say what the truth is – people will be more likely to believe what they say.”

The Revenue’s embarrassment was made worse when it emerged that in a separate incident, the Revenue had despatched to accountants their clients’ PAYE Notices of Coding, but without clients’ names. The depth of the Revenue’s problems with its IT system was confirmed when it became clear that a software failing was causing it to send out many – possibly tens of thousands – of inappropriate late penalty notices. A wrongly programmed default setting was causing computers to read the date on which returns were being processed as the date of receipt, and consequently logging returns that were submitted in time as being late.

A spokeswoman for the Revenue said that the on-line security problems were not the responsibility of its main IT contractor, EDS. The renewal of that contract is now in the process of being tendered, probably bringing together the tax and national insurance IT systems. The Revenue’s spokeswoman said that while it was true that it had had computer problems over recent years, it did not blame EDS for these. “The tax system is highly complex,” she said, “and problems are more to do with that complexity.”

Moves to force disclosure on company accounts

Pressure for multi-nationals to include social responsibility information in their annual reports has grown after the launch of two campaigns, one from leading fund managers and another backed by the successful investor, George Soros.

The fund managers’ move can be seen as part of a wider strategy by them to become more active shareholders. This is no doubt motivated in part by anxiety to protect shareholdings in the light of events at Enron, Marconi and many other IT and telecoms companies.

Some 30 fund managers have signed up to a demand that corporations disclose information on greenhouse gas emissions and what steps they are taking to move towards using sustainable energy sources. Several fund managers – including Credit Suisse, Allianz and Merrill Lynch – are apparently keen to quantify corporations’ potential risk liabilities and ensure companies have effective strategic management in place as their operating environments enter a period of potentially major change. Others – such as the Co-operative Insurance Society and Henderson – are focused on the ethical and socially responsible investment markets.

Parallel action was launched by a cross-party group of about 150 British MPs who have published a Corporate Responsibility Bill, which would make social and environmental reporting mandatory. In addition, it would impose duties and liabilities on directors and companies regarding the social, financial and environmental impact of their companies, including forcing them to consult with a range of stakeholders on major projects and provide legal redress to people negatively affected by business decisions. These powers would be backed by a new regulatory body to oversee environmental and social standards in businesses.

The Bill, backed by a range of powerful charities and lobby groups, is seemingly endorsed strongly by the British public in an opinion poll and reflects comments made two years ago by Prime Minister Tony Blair that companies should move towards greater social and environmental reporting. It would therefore seem to have a fair chance of being enacted.

The Financial Services Authority could implement it by changing the Stock Exchange listing requirements without the need for Parliamentary approval. The FSA says it will be reviewing the listing rules later this year, but it has no plans to extend the financial reporting regime to cover social and environmental reporting and that this is “a matter of public policy” – suggesting that it will leave this to the UK Parliament to decide.

Europe’s Parliament has already voted in favour of creating European-wide legislation to require larger corporations to produce social and environmental reports. The European Commission has brought forward its own proposals for a directive that would force corporations to increase the coverage of non-financial reporting.

Meanwhile, international financier and philanthropist George Soros has launched the “Publish What They Pay” campaign to force large corporations to disclose their payments to all governments. Soros is the public face of a coalition of over 30 NGOs which are concerned that non-tax payments to governments are, in some instances, improperly influencing policy and in other cases are forced from corporations to enable corrupt dictatorships to stay in power. Again, the campaign is calling for disclosure requirements to be mandatory.

Soros said: “Secrecy over state revenues encourages ruling elites to mismanage and misappropriate money rather than invest in long-term development. What we want is very simple: G7 governments should require transnational resource companies to disclose what they pay for the products of the individual countries in which they operate. This is a real chance to promote good fiscal governance and help tackle worldwide poverty.”

Investigations by Global Witness – published three years ago as A Crude Awakening – provided the basis for the proposals. These found that in one African country – where a devastating civil war has been fought for many years – about $1bn disappeared from state funds each year for the last five years, equivalent to a third of the Government’s income. Most of that money had been paid without overt disclosures by corporations of how much they paid, and there is no prospect of the country’s population demanding to know how their money is spent, says Global Witness.

In many instances, says the NGO, resources that have supposedly been nationalised for the people’s benefit have really been stolen by countries’ leaders. It points to the fact that the mineral-heavy African nations are much more likely to have suffered civil war, as groups fight for control of their massive wealth. In turn, this contributes to the destitution of the populations despite their mineral richness.

The Africa Centre for Constitutional Development, based in Nigeria, is another group backing the proposals. Julius Ihonvbere of the Centre said that the hidden payments by oil corporations to corrupt Nigerian former president Sani Abacha had enabled him to stay in power and conduct a system of repression. “In Africa, we face a situation where billions of dollars from oil, mining and gas revenues go missing leaving us dependent on international assistance to feed our people,” said Ihonvbere.

These moves underline the groundbreaking work over recent years by ACCA to promote social reporting. ACCA has been involved in developing environmental reporting since 1990 and extended that this year to sustainability reporting. Roger Adams, ACCA’s Executive Director – Technical, said: “Pressure is mounting for companies to widen the scope of corporate public accountability and many are responding by including social data in their environmental reports, preferably through a well managed process of stakeholder dialogue.”