UK – The chairman of telecoms firm Cable & Wireless, Richard Lapthorne, has launched a scathing attack on the FRS17 pensions accounting standard at the National Association of Pension Funds’ annual investment conference.
“FRS17 has probably provided the final nail in the coffin of defined benefit pension schemes,” Lapthorne said in a keynote address at the NAPF meeting in Edinburgh. “Nobody runs a pension fund on a wind-up basis.”
“FRS17 to me is a whole set of compromises driven by auditors.”
The standard takes a market view of pension assets and liabilities. It is similar to the forthcoming international standard IAS19.
Lapthorne said that instead of focusing on the accounting treatment of pensions in this way, the focus should have been on looking at the assumptions used about returns. “We should have been challenging the assumptions. That debate was ever had.”
He told delegates: “It may give the analysts a view, but it’s not an accurate view.”
The C&W chairman's theme was that regulation was proving too complex, claiming: “The cure is becoming worse than the ailment.”
And he was forthright in his views about insitutitional shareholders. He said it was an “extraordinary development” that institutional shareholders talk to the press before talking to the company itself.
“Why are the owners speaking to the press and not the managers they pay to run the company on their behalf?”
He said analysts have a ‘laundry list’ of questions for managers, which negates a more organic approach to talking to management.
This, he said, was partly driven by the competitive nature of the asset management industry. Lapthorne said he was worried analysts might be “lulled into sleep” with a purely quantitative approach and miss potential problems at companies.
He also said he was “dismayed” at class actions by shareholders against company managers.
As a result of such actions, he claimed, managers were not focusing on the business but more on watching their backs. “How can trust exist in such a situation?” he asked.
Lapthorne said that the revolution in audit and accounts was “leading to fog not clarity”.
He said there was currently a ‘phoney war’ in the area of corporate governance field and non-executive directors.
But he predicted more serious consequences to come: “My prediction is that the phoney war will turn into a real war.”