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An ethical stalemate - APESB and CPA Australia

Posted: Mon Jul 02, 2018 7:46 am
by Brett Stevenson
What happens when the people who set the ethical standards for the accounting profession are themselves possibly guilty of contravening those standards? In other words what happens where the standard setters do not walk the talk?

I suggest this is the dilemma facing the APESB, the body established by the three major accounting organisations (CAANZ, CPA Australia and IPA) “to develop and issue, in the public interest, high quality professional and ethical standards”. APESB is the acronym for the Accounting Professional and Ethical Standards Board which comprises five directors appointed by each of the accounting bodies (2 from CAANZ, 2 from CPA Australia, 1 from IPA) who then elect an independent Chair (currently Nicola Roxon).

The current ethical stalemate/dilemma is that the two CPA Australia representatives are Penny Egan and John Cahill who have both been closely associated with the past decade of poor leadership at CPA Australia. Both were presidents of CPA Australia and long serving directors during the period of major shenanigans while Alex Malley was CEO.

Such was the failings of the CPA leadership during this period (scandalous remuneration, wasted millions marketing the CEO rather than the profession and members, a gerrymandered governance structure which maintained power for a few, a subsidiary which wasted millions including on the leadership, an unwillingness to be open and transparent in their reporting to members etc., which a $1 million Independent Review in 2017 corroborated) that the CEO Alex Malley was sacked and the entire board and most of the senior management were replaced. During this decade both Penny Egan (2006 - 2015) and John Cahill (2007-2013) each received well over $1 million in directors fees from an organisation which prior to 2007 only paid directors fees to the President/Chair with the rest serving voluntarily. Penny Egan averaged close to $150,000 pa, and John Cahill over $200,000 pa as directors.

Such was the support for Alex Malley’s leadership and remuneration that Penny Egan wrote a letter to the AFR a few days before he was sacked
  • 1. criticising the media (the AFR in particular) for exposing the shenanigans - “the unrelenting and negative reporting by some media outlets about CPA Australia and its CEO Alex Malley is extremely disappointing”
    2. commending his selection and leadership - “The appointment of Alex Malley as CEO was and continues to have been an excellent decision. Subsequent boards have had no reason to question his integrity, passion and leadership.”
    3. affirming his scandalous remuneration - “His remuneration is commensurate of other CEOs leading an organisation of this size.”
It hardly needs emphasising that all these statements by Penny Egan are wanting and misleading. The media criticisms and exposure were correct (effectively doing what the CPA leadership failed to do), Alex Malleys leadership was self aggrandising and strategically inept, and to even suggest his remuneration (annual salary of $1.79 million, and termination pay of three years totalling $5.5 million) was commensurate with comparable organisations is pure fanciful thinking.

So the question is why are these two people the CPA Australia representatives on the APESB given this track record?

Is this the standard we can expect of the directors of the organisation which develops and issues the ethical standards for the accounting profession?

What has been said above is not new, and I have written of this before and raised this with both organisations.

What has been the responses of the two organisations?

1. APESB
The APESB effectively ‘passes the buck’ by saying it is not their issue as CPA Australia is responsible for appointing its representatives (“The choice and nomination of directors other than the Chair are specified in APESB’s constitution and are matters for its shareholders, the professional bodies.” )

Thus we are left with an organisation (APESB) setting ethical standards while some members of its board arguably should not be there on professional ethical grounds. The ethical dilemma is not only a personal existential one (why should I adhere to standards) but also a larger professional one (how can we expect high standards) from a body which does not itself adhere to such standards.

For the APESB to say it is not their concern is a bit like not closing the hen house door when you see the fox lurking because it was the responsibility of someone else. Or perhaps it is akin to accounting academics saying we just teach the ‘mechanics’ of accounting, it is not our job to get involved in raising ethical concerns. Or perhaps the best analogy I can think of is to say it is like the body responsible for setting ethical standards saying that whether the people who set the standards abide by them is irrelevant.

2. CPA Australia

CPA Australia in their normal fashion have just ignored the matter (even though raised at both the recent AGM, and in correspondence with them) hoping it will just go away. They just presume members will lose interest (which is a pretty safe assumption with most CPA members) and just do what they want irrespective of whether it is right or wrong. It works for the CPA leadership but crikey it’s a sure fire way to lose credibility completely. But that has not bothered them in the past so why should it worry them now given that total unchecked power and exorbitant remuneration are a nice reward for a job badly done.

Their silence is a concern so perhaps it is worth noting some possible reasons/relevant factors.

1. Ian McPhee who headed the Independent Review into CPA Australia in 2017 had reasonably close connections with the APESB as he was the CPA representative on the equivalent international body IESBA (IFAC International Ethics Standards Board for Accountants) in at least 2016 and 2017, and was guest speaker at their 10 year celebratory dinner in November 2016.
2. The Ian McPhee led Independent Review made no recommendations to pursue accountability of any of the leadership of CPA Australia for their behaviour and decisions.
3. The Ian McPhee led Independent Review recommended against the members of CPA Australia being able to directly elect their directors.
4. The new board of CPA Australia refuse to take any sort of action against the past leadership of CPA Australia (in line with the Ian McPhee led Independent Reviews recommendations) to hold them accountable. They have refused to obtain a legal brief for possible action against the past board for approving Alex Malley’s three year termination pay so clearly they will not countenance any accountability of past leaders.
5. Two of those past CPA Australia leaders are now on the board of APESB despite member protests to the contrary.
6. The new board promoted a new governance structure which has effectively consolidated another gerrymandered board selection process such that 50% of the membership (NSW and Victoria 80,000) have only the same two votes as 2% of the membership (NZ and Europe 3,800).
7. The new Chair of CPA Australia (Peter Wilson) at the AGM spoke of how he and his fellow directors
a.
“sincerely and deeply regret the hurt, anger and extreme disappointment over the events that have unfolded in our organisation”
. Yet they want to forget the past and move forward so no-one is held accountable.
b. acknowledge that
“they cannot change what happened but can only do their best to make sure it never happens again”
. Yet they oppose members resolutions to enable members to directly elect directors, call members meetings, or communicate on serious issues with the entire membership which were all meant to address the failings of the past so that it never happens again.
c. describe themselves
“as being on the outside looking in”
at the events over the last decade at CPA Australia. Yet many of the new board had better inside seats and relationships with the failed CPA leadership than most (Ric De Santi, Robyn Erskine, Merran Kelsall, Caroline Spencer). Even Peter Wilson’s AHRI (of which he is Chair) described itself as being in partnership with CPA Australia in 2016.
With that sort of track record is it little wonder that the new board of CPA Australia remain silent on the issue. And they should be ashamed for doing so.

So here we have an ethical dilemma or as I said in the title an ethical stalemate between the APESB who keep passing the buck back to CPA Australia and CPA Australia who just remain silent on the issue. In the meantime we are left with a body responsible for developing and issuing professional ethical standards for accountants which has significant question marks over its very composition. We have already seen and experienced the results of this sort of leadership in CPA Australia - an uninterested and disengaged membership, and a watching world which looks on with disdain.

Surely it is a fundamental ethical principle that we need to walk the talk, as imperfect as that may be at times. Surely where we have a leadership who set the standards we can expect a keener appreciation and sensitivity to the perception and reality of what they profess.

Passing the buck by one and remaining by silent by another hardly meets even the most basic credibility assessment. Perhaps the CAANZ and IPA might have something to say on this as it impacts on the whole profession, and they are the other two shareholders in the APESB.

Re: An ethical stalemate - APESB and CPA Australia

Posted: Wed Jul 04, 2018 2:15 pm
by friendlier
There are issues in self regulation that result in power abuse. That seems evident in the changes to the membership voting rights to ensure that the end result is achieved by the current board. You may also want to see what the self regulation model is at AHRI where Peter Wilson has presided as ruler for a period of time that is longer than their original charter allowed. It seems from AGM meeting notes that he was in a position to change that charter to achieve longer tenure. There seems to be a pattern of repeated behaviour.

Re: An ethical stalemate - APESB and CPA Australia

Posted: Mon Jul 09, 2018 7:07 am
by CanadianCPA
IPA and CAANZ are quite happy with the damage CPA Australia is doing to its brand.

The fight is over, and lost.

Re: An ethical stalemate - APESB and CPA Australia

Posted: Mon Jul 09, 2018 5:06 pm
by JWheldon
The CPA Australia brand is basically about an education business. It is not really about anything else. What do others think?

Who has received and read the CPA draft corporate strategy for 2018-2021?

https://www.cpaaustralia.com.au/about-u ... -July-2018

It is interesting to read that the CPA Program is going to be more internet based testing. Maybe this enables CPA Australia to provide more opportunity for members to redo the CPA exam over and over again, throughout the year. Thus generating more revenue.

Wonder if Institute of Chartered Accountants and IPA will follow the CPA lead and do more testing online, with less interaction with the actual junior member?

Are, the Institute of Chartered Accountants, the IPA, CPA Australia, about generating as much money from their education business, so they can remunerate the board and the management team for increasing revenue and membership numbers?

Interesting that CPA Australia wants to improve its interaction with members in its strategy. It does appear that members generally try to avoid having to deal with CPA Australia, when possible. Member that operate in the public practice area, have indicated that they generally only hear from CPA Australia, when they want information about their public practice insurance or when they are under a quality assurance review, and then the result is not positive. What do members think about this new CPA Australia strategy??

Re: An ethical stalemate - APESB and CPA Australia

Posted: Wed Jul 11, 2018 10:56 am
by Not_A_CPA
JWheldon wrote:
Mon Jul 09, 2018 5:06 pm
Are, the Institute of Chartered Accountants, the IPA, CPA Australia, about generating as much money from their education business, so they can remunerate the board and the management team for increasing revenue and membership numbers?
Can't comment on CA, but the IPA program is outsourced to Deakin with a MBA at the end of it. Potentially some money might flow back to IPA from Deakin (and now Monarch Institute who do their diplomas).