23 September 2005
CIPFA members have just over a month to make the historic decision on whether to merge with the ICAEW. Steve Freer explains what's at stake
Many readers of Public Finance will be familiar with the curious mix of emotions – relief, excitement, apprehension – that coincide with the first clear sight of the finishing line of a major project.
Certainly all of these emotions have been coursing through the veins of the teams from CIPFA and the Institute of Chartered Accountants in England and Wales (ICAEW) as the finishing line of our integration project has come clearly into view over recent weeks.
After the long haul of, first, exploratory talks and then detailed negotiations, we now know that decisions on our proposals to create a new combined institute will be announced at simultaneous Special General Meetings on October 25. CIPFA members should receive more information and their voting papers next week.
If the scheme is supported by the two memberships it will represent an historic breakthrough for the accountancy profession, which has struggled for decades to put in place a more effective, fit-for-purpose structure. Despite discussions over many years, I have yet to meet a serious supporter of the existing arrangement of six discrete chartered bodies. It confuses the public; it emphasises competition rather than co-operation; and it constrains the UK profession's ability to speak with a clear, authoritative voice to government, to regulators and to standard-setters. No other country in the world adopts such an unnecessarily crowded and complex model.
Of course, reducing six bodies to five might not seem like an earth-shattering development. But, believe me, it will register powerfully on the profession's Richter Scale. These are not just any two bodies that are forging an alliance. They are the brand leaders in the public and private sectors and, measured by turnover, two of the three largest bodies in the UK profession. With a combined membership of 140,000, the new institute will be a hugely influential player in shaping the profession's future, nationally and internationally.
Additionally, the joining of CIPFA and the ICAEW might yet be the first stage of an even more significant scheme. Talks with CIMA, the Chartered Institute of Management Accountants, are ongoing and might still lead to a stage two initiative that realises the tripartite 'consolidation' vision of 12 months ago.
So these are exciting and potentially very significant developments. But will they come to pass? And if they do, will the brave new world really be so very different from our current experience?
Winning the vote will certainly not be easy. Both institutes require overwhelming support – 662/3% of members voting – for such important decisions. Put more starkly, that means that votes in favour must more than double those against.
Fifteen years ago, a previous attempt to merge CIPFA and the ICAEW yielded 80% and 61% support respectively – clear majorities but not quite sufficient support from the ICAEW members to carry the day. On the whole, this feels like a rather encouraging precedent. Most, if not all, of the events and developments of the intervening years seem to strengthen the case for integration. Post-Enron, the need for the profession to get its collective act together is painfully striking to us all. We need strong leadership; we need coherent strategies to tackle big issues such as restoring confidence and trust in the profession; we need to exercise influence where it matters; and we need uncompromising commitment to the highest standards.
Big is not always best. But the nature and scale of these challenges are such that size (and resources) really does matter. By combining CIPFA and the ICAEW, we can create a powerful institute that makes a truly significant difference.
Many members of the two institutes will, of course, want to see more practical, tangible benefits too. Never mind influencing global regulators, they might say, what about support for hard-pressed members down on the front line?
This is where the fit of CIPFA and the ICAEW offers immediate benefits. CIPFA is well known for its deep engagement with public policy and the issues and challenges facing public bodies. For members working in such organisations the institute is a mine of useful information and helpful support. But the picture is less rosy for the minority of CIPFA members who work in the private and charitable sectors.
The ICAEW's profile is almost a perfect mirror image of CIPFA's. Its primary focus is the private sector, spanning both practice – the world of the accountancy firms – and business. Again, this reflects the dominant occupations of members. The ICAEW's minority of less well supported members are those working in the public sector, some 2,000 of a total membership of 126,000.
Opening up the support of both institutes to their combined membership will clearly realise some important 'quick wins'. But this is only half the story. As well as offering existing support services to wider audiences, the combined institute will also work to develop new services that add real value for members. These developments will be funded from the significant efficiency gains that are achieved as the two organisations are brought together.
Additionally, further valuable benefits will come from organising events and creating networking opportunities across the full span of the membership. Certainly in the public sector there is a real appetite for different 'outsider' perspectives on everything, from the creative use of technology to customer relationship management and performance measurement. And, of course, there are many aspects of finance – PPPs, financial reporting and auditing standards, etc – where understanding of private sector perspectives is absolutely essential to successful public finance accountants.
The new combined institute will be uniquely well placed to facilitate discussions that share valuable knowledge, ideas and experience between different subsets of the membership.
With all these benefits, many members are instinctively positive about integration. However, the optimism of some is tempered by fears and concerns. For example, CIPFA members are very aware that, measured by membership numbers, the institute is small compared with the ICAEW. Will CIPFA disappear without trace? Will its passionate commitment to the public services and public finance gradually erode until it is no longer visible within the new body?
The CIPFA Council has worked very hard to ensure that these negative outcomes do not arise. The CIPFA qualification will be maintained as a specially tailored route to full qualification for members working or aspiring to work in the public services; a Public Services Faculty will be established and will continue CIPFA's distinctive policy and technical work: carrying out research, promoting best practice, responding to government proposals and developing our own innovative ideas around better governance, financial management, financial reporting and so on. A successor charity will be created to take over the ownership and management of CIPFA's charitable assets, including our substantial property and commercial interests.
The last point is particularly significant. As well as meeting the requirements of the Charity Commission, the CIPFA successor charity provides a mechanism for continuously reviewing the combined institute's profile and performance in the public services. The charity will have significant resources at its disposal – mainly arising from its commercial interests – and should therefore be in a strong position to provide financial support for many of the combined institute's activities. In making funding decisions, the trustees of the charity – a majority of whom will be public sector members of the institute – will be able to consider whether the combined institute is maintaining its profile and fulfilling its responsibilities to the public services.
In practice, few difficulties should arise in this area. The public sector is such an important market for the profession, in the UK and internationally, that there are very strong business imperatives for the combined institute to give it a high priority. All the incentives will be to build on the strong position inherited from CIPFA and to continue to cultivate a reputation as the leading public finance institute in the world.
So will all of the hard work bear fruit? These are critically important decisions for both institutes and it is vital that members engage with the detailed final proposals which are currently being distributed and judge them on their merits. Both institute councils believe that the terms are right and are recommending strong support. Above all, both institutes hope to see high turnouts so that they can feel confident that the decisions taken are representative of membership views.
The first 12 months of the new institute's life will then be critically important for engineering key changes. It will also be a tremendously important period for the new institute to make its presence felt in the profession and more widely. So there will be big agendas to tackle both internally and externally. Perhaps, on reflection, this is not the finishing line we can see. Perhaps it is simply the lap marker!
Steve Freer is the chief executive of CIPFA