Change. I’ve spent the past 17 years working specifically in change. These days I teach it, coach people through it, and help businesses to implement it. I learned how to “do” change as a lackey at a global management consulting firm. There’s a lot you learn in a work context like that, advising the largest and most respected industry and government clients, where the standards are high and expectations are even higher. It’s the kind of pressure that makes diamonds.
Over countless workshops and focus groups and interviews, with clients from CEOs to their executive teams to frontline staff, what I’ve learned is that the first step in any change process is acceptance.
As I sit here today looking for a real live example to illustrate my point, I can’t go past CPA Australia.
Who, you say? Excellent. That’s how it’s supposed to be – a nondescript industry body for Certified Practising Accountants in Australia. For over 100 years the organisation has been flying beneath the radar to deliver a largely functional service to its membership: accreditation and membership of a professional accounting body, as is required for most technical jobs in finance.
But if you’re a consumer of business media then the chances are you’re very familiar with CPA Australia, for all the wrong reasons. CPA’s leadership is in the eye of a public relations storm for its poor governance practices, with media reports painting a picture of executive largesse, obscene levels of remuneration, past professional misconduct, breaches of fiduciary duties, reporting misrepresentations, constitutional changes that dilute member voting rights, flagrant breaches of constitutional bylaws, flawed strategies around a CEO-centric branding model and a flailing financial advice business, and conflicts of interests that benefit certain members and directors above all others.
What members now know for sure – after months of asking and a reluctant disclosure instigated by 100 members under s202B of the Corporations Act – is that the CEO of CPA Australia earns $1.8m annually.
His two COO direct reports earn more than $900,000 annually (each). Then the next 17 highest managers in the business earn between $250,000 – $550,000 per year (totalling somewhere between $4.8-$6.1million), when the average full time salary in Australia is less than $82k.
And then there’s the Directors of the organisation, who until the current CEO’s reign were all voluntary (except for the President). They are now paid on average almost $120,000 each, with the President/Chair receiving $312,000 and the outgoing Chair receiving $359,000. Plus, they’ve set up a subsidiary company to channel additional remuneration their way.
These sorts of numbers bear no resemblance at all to market comparisons for a not for profit industry body, and for just 6 to 10 sitting days per year.
The rest we are all still working through, but judging by the evidence that’s crossed my desk so far, it seems there is fact behind every one of the media allegations.
The reason it’s all so newsworthy is that CPA Australia is one of three accounting membership bodies that has a legal mandate under State and Federal laws to set the professional standards for financial record keeping and governance in Australia. So, the fact that the leadership at CPA Australia is accused of cooking the books (or financial incompetence, to take a different view) and breaching their professional duties is a big deal in the legal and business world.
If the allegations are true (and with the growing body of evidence, any alternative seems implausible) then the reputation of its 160,000 members across Australia and sprinkled throughout some of Asia, is at risk. Especially those voting members with full CPA status (like me) who rely on their professional membership with CPA Australia to perform their professional work.
Understandably, CPA Australia’s membership is demanding change. A critical mass is building around a mailing list (currently at 1,300 members and counting). Politicians are now getting involved (through their control of the legislation under which CPA operates) due to the middle-finger response CPA has given members demanding company register information (as is their entitlement under the law). And business leaders are beginning to ask questions too.
The leadership of CPA Australia, on the other hand, continue to bury their heads in the sand (or in some other region where the light doesn’t shine). Rather than changing its approach, the Board and executive continues to focus on justifying their own self-interest, intimidating members who speak out, and waxing lyrical about the surpluses this not-for-profit body is generating.
Unless there is swift and decisive action soon, this will drag on for months if not years and destroy the once-stellar reputation and brand that members rely on for their living. Having lived and worked through the fallout of Enron (as an employee of Arthur Andersen), the one thing I know for sure is that once-strong organisations can fall fast.
So what can CPA Australia do to correct the past and change the situation for the better
1) Accept there is a need for change, to capture opportunity, or address real or perceived weaknesses or threats.
The first point of call here is members. Yes, there are 1300 members who have stepped forward to demand change. But where are the other 158,700 or so?? Do they seriously think the CEO should be paid $1.8m per year, and that his two direct reports are worth more than $900k annually? Do they not mind that constitutional bylaws are being broken? That our CEO has appeared on national television trying to argue that the fudged numbers really do add up (when clearly they don’t)? That governance is substandard? That money is being thrown around like it’s the 1980s on Wall Street? Do they really think that greed is good? Or, if they don’t agree with what they see, why aren’t they standing up and saying so?
What about the FCPAs, our Grand-Poohbah fellows of the society? There are thousands of them. Why are these tribal elders not using their “expert status” within the society and the broader community to blow the whistle on current practices?
Members should remember that CPA’s license to operate is governed by the law, and laws can be changed. Should the regulators revoke CPA’s privilege to qualify professional accountants, members will have a big problem. The accreditation process and educational component of each of the professional accounting bodies being unique and non-transferrable, any member wanting to change membership from say CPA Australia to Chartered Accountants Australia & New Zealand, or the Institute of Professional Accountants, would have to complete a whole new membership accreditation process which is expensive and can take years of itself. Not an easy option for any of us.
The number one priority must be to restore faith in the CPA brand, its governance and its leadership. For that to happen, members will need to pass a vote of no confidence in the current Board and executive leadership and oversee a complete spill. Do members have the courage to do this? We shall see.Even if members don’t want to speak out on the public record (as some still tell me is their wish) then at the very least they must accept the seriousness of the issue and get behind members who will. And be ready to assign their proxy vote. It really can be as simple as that.
2) Accept that there are things you can control, and things that you can’t, and the place to focus is on the things that are moveable. The past is history; all that matters now is what happens into the future.
No amount of denying is going to change what is already in the public domain and on the public record. No amount of squealing will turn off the media attention. The payroll costs are what they are. The member numbers are what they are (though we still don’t know how many fully qualified CPAs there are as compared with the cereal-box Associate status the Board has focused on under the Brand-Malley strategy). The remit of the organisation is what it is. More and more members are coming out of the woodwork and speaking on record. The ONLY thing the members and executive can change now is our perception moving forward.
3) Accept there are choices and trade-offs to any decision. Just because you can do something, it doesn’t mean you should. Understanding the why will help navigate these challenges.
The Board of CPA Australia – a not for profit membership organisation or industry body – need to go back to first principles and remember WHY the body exists. The strategy they’ve adopted is aimed at transforming the not-for-profit membership organisation into a brand-driven money making enterprise. This is not what members want or need. Indeed it could have unintended consequences from a financial and taxation perspective.
The Board is paying itself and the three top execs an obscene amount of money (over $5.5million between them) simply because they can. They have a captive audience that must pay their membership dues every year to earn income; the cashflow is rock solid and isn’t going anywhere (that’s the 98.3% member retention rate Malley refers to). The Board keep saying it’s all fine because there’s plenty of money left in the bank. Well just because you can, it doesn’t mean you should.
CPA Australia does not exist to publish books about a naked CEO. No, members do not need to fund a variety TV show hosted by our CEO. And no, members should not get continuing professional development hours for watching our CEO interview popular celebrities who have plenty of fame but nothing to do with finance and reporting.
The Brand-Malley strategy is flawed for many reasons, key of which is that no organisation in its right mind would invest so heavily in promoting the brand of an individual when that person could walk any day of the week. It creates unnecessary risk. And its possibly why Malley now has the Board over a barrel and can demand a pay packet of almost $2million a year. Does the Board let him go and see their strategy implode; or do they keep paying him more and more to keep him there? Will one of them speak up and move a vote of no confidence? What happens when the key-person’s brand is tarnished with allegations of past professional conduct? Do you still hang on and try to defend the strategy, or do you let go and focus on the members you exist to serve? The Board keep saying it’s all fine because there’s plenty of money left in the bank. Well just because you can, it doesn’t mean you should.
And then there’s the financial advice business that has so far consumed over $12million of member funds, with only 24 members signed up to use the service and $44,000 in revenue in the last financial year. Having spent several years consulting in the wealth management and financial advice sector, this is another example of poor strategic direction by the Board.Financial advice is a complicated business, and one which CPA members are involved in as trusted advisors of their clients. A huge component of trust is independence, and I fail to see how CPA building their own advice business can add independence to the process.
There should be a complete separation of duties, between the licensing of financial advisors and products, and the professional accreditation of accountants. That is what is in the public interest, not trying to create an advice subsidiary.How much more money will the Board sink into this business before they realise it’s not actually what the public or their membership wants? The Board keep saying it’s all fine because there’s plenty of money left in the bank. Well just because you can, it doesn’t mean you should.
4) Accept that change is a doing word. Take responsibility for your role in making change happen then do your bit, understanding there’s no place for egos in getting the job done.
If the leaders of CPA Australia – the Board and key executives – have any respect for the members they were appointed to serve, any moral compass, and any hope of salvaging their now tarnished careers, then they will show moral courage and step down immediately.They could all be replaced with interim stewards immediately who would oversee the appointment of permanent replacements who are committed to the WHY. That means the CEO, two Chief Operating Officers who between them are paying themselves $3.6m and all Board Directors (paying themselves a further $1.8m) must go.
How will the organisation survive without them? Well to start with, those other 17 managers all earning up to $6million between them must be very good at what they do. Surely they’d be able to manage membership certificates, run training seminars and handle member queries quite adequately.
The Board recruitment process that has been commenced must be halted and commenced afresh with a new recruitment partner who is completely independent and has the members’ interests at heart, not their lucrative contract. Our governing officers (the Board) should be comprised of members. After all, we have 160,000 of them working across every industry and sector, for goodness sakes. That’s a pretty good sample of the business community to draw on.
It’s no surprise that the Board waited until the day AFTER board nominations closed to reveal the obscene remuneration information that members have been asking for. This is the sort of behaviour we’ve come to expect and we have every right to assume that the new Board recruits would have been hand-picked by the current Board with the same “boys club” mentality as past appointments.
So let’s open up the wound and start the healing process with full transparency, and begin winning back member trust.
5) Accept that you won’t always get it right. Even if you start off down a particular pathway, if it becomes too treacherous it’s better to turn around and find a better route than soldier on into oblivion.
The current Board and executive are as reputationally damaged as the CPA brand for their involvement in this scandal. The only restitution will lie in them learning the very important act of humility, admitting they got a lot wrong, and then stepping aside to make way for fresh blood. But realistically, why would then when they’re on such a good wicket?
Members have been caught napping at the wheel while all this greed and self-interest has been allowed to flourish, and are now the only ones who can say with accuracy what it is that they want and need.A new leadership could very quickly engage with members and (here’s a novel idea) then listen to their feedback and build a strategy around it.
This is acceptance, and this is what must happen immediately to save the reputation of CPA Australia. All is not lost, but it does require action. Now.
Yours in hope,