Financial advising expert, former judiciary expert at the cour de cassation, René Ricol has been contributing for more than 35 years to the development and professionalization of corporate advising services for growth and performance. He is a Grand Officier de l’Ordre du Mérite and of the Ordre National de la Légion d’Honneur. In 1987, he founded Ricol, Lasteyrie & Associés with Jean-Charles de Lasteyrie and Gilles de Courcel, currently one of the leaders in independent financial expertise and financial risk management in France. René Ricol has been active in national and international professional institutions: President of the Compagnie Nationale des Commissaires aux Comptes from 1985 to 1989; and founder and Honorary President of the Compagnie des Conseils et Experts Financiers; and President of the Conseil Supérieur de l’Ordre des Experts Comptables from 1994 to 1998. In 1997 René Ricol was elected to the board of the International Federation of Accountants (IFAC), which brings together professional organizations from 119 countries worldwide. He was President of IFAC from 2002 to 2004. During this time, learning lessons from the scandals that disrupted the financial markets, he initiated and resolved, together with international regulators and standard setters, a deep reform of the international accountancy profession and audit practices. For further biographical information, kindly consult: http://www.ricol-lasteyrie.fr/bio/RRicol.html Ricol Lasteyrie supports companies and investors in their analysis of the objectives and stakes in financial evaluation, strategic development or strategic financial analysis. Ricol Lasteyrie benefits from a unique positioning in the market, offering more than 25 years of the highest level experience at the intersection of financial evaluation and corporate finance. Teams of professionals bring experience from audit, merchant banks, financial analysis and stock exchange regulation and are led by 15 partners highly engaged in the firm’s various missions. They are all dedicated to providing clients with a personalized, custom-tailored, interactive and long-term relationship. For further information about Ricol Lasteyrie, kindly consult: http://www.ricol-lasteyrie.fr/
- What is the most important ethical lesson you learned (either personally or professionally)?
Respecting simple ethical rules characterizes moral behaviour, but should also refer to intelligence and economic efficiency. Ethical rules should be simple. People sometimes say that they are “doing the right thing” when they are trying to implement ethical values but they don’t really understand their meaning because these rules are too complicated. The example of auditor independence shows the serious consequences of complicating ethical rules. When I was President of IFAC, the auditing profession decided to limit the auditors’ scope of work to statutory audit. Thanks to this decision, the ethical rules were simple. The recent decision to, once again, allow auditors to perform consulting assignments led to three serious consequences: (i) when governments yielded to the pressure of lobby groups to allow auditors to perform consulting assignments, many new complicated and difficult to interpret regulations were adopted and conflicts of interest between auditing firms and their clients rose dramatically. (ii) Auditors’ revenues decreased as professionals were compelled to answer to competitive bids in order to obtain auditing assignments. Therefore, auditors have lost their brand image as pure statutory auditing firms. (iii) Operating costs of the new audit and consulting firms have increased considerably. This trend was due, for example, to teams’ wages in charge of interpreting ethical rules and ensuring the compliance of internal rules. More generally, it is impossible to act both as a statutory auditor (whose mission is to protect third parties) and as an adviser (who performs assignments for the company).
- Which ethical business matter shocked you the most in the news recently? Why?
The biggest shock I had, occurred during the 2008 financial crisis and the subsequent period. At this time, most financial institutions had highly competent boards of directors but their members lacked the necessary relevant information to enable them to anticipate difficulties. In fact, these members can only base their decisions in good faith with the available information provided to them. If we want these boards of directors to make good decisions, we need to change the boards’ mentality and must require its members to be more proactive in asking for more relevant information. Moreover, we should create a new specialized committee gathering board’s members which will be in charge of assisting the Board of directors: this information committee would be responsible for seeking the most complete, up-to-date and relevant information from external advisers, lawyers, the CEO and other members of the management team. If we keep the process simple for this committee, information should be transmitted quickly to the Board’s members and the serious risks should be easily addressed.
- In your opinion, what are the opportunities for both corporate and non-profit sectors to collaborate, in order to improve ethical matters?
In both private and non-profit sectors, I strongly believe that if we do not take into account the interests of society as a whole (all stakeholders), companies will disappear because many countries will begin to reject business activities such as financial services. If companies don’t engage in Corporate Social Responsibility (CSR) – for instance, by sponsorship or funding research or universities – they will face increasing difficulties in Europe where, while no one argues with earning profits, there is a high expectation regarding CSR. In the non-profit sector, the problem is similar: the high cost of fund-raising is increasingly difficult to accept. Non-profit organizations need to rethink the way they operate and renew or seek new partnerships. How can both private and non-profit sectors work together? Thanks to a kind of “short-cut” in the existing system: companies can support non-profit entities thus reducing the fund-raising costs for these organizations. In the end, there is an exceptional opportunity for both sectors and the combination of transparency and solidarity can raise the level of expectations for ethical rules.
- What are the most effective strategies to mitigate the risk of unethical behaviour in your organization?
Written procedures and team works are the best way to reduce the risk of unethical behaviours. We have a written procedure describing the rules to follow in order to issue our opinions. This procedure requires that two teams review the work performed (a team in contact with the client company carrying out the assignment and a team who has never met the client company’s representatives). Generally, both teams agree. In case of a disagreement, I have never seen the team in contact with the client imposing its point of view to the internal team. As one of the French leading financial advisory firm, our incurred risk is enormous. However, we have no complaints against us. This result is due to the application of a simple ethical rule: we do what we say. Regarding the French public authorities, the example of the investment fund named Investissements d’avenir (“investing for the future”) that I was in charge of, after being appointed by President Sarkozy, had 35 billion euros under management. In this organization, I implemented a strict procedure similar to those existing in private firms. It included the following items : (i) recruiting a team with the help of an external consultant and a committee in charge of recruiting the best qualified people through a transparent process and (ii) launching an open invitation to tenders regarding projects that have been selected by an independent international jury (whose members’ identity has never been revealed). We really complied with this procedure and this investment fund is one of the few structures created by President Sarkozy still in place after the President Holland’s election, with the recent appointment of Louis Gallois as director of the organization. Ernst & Young issued a report indicating that 75% of those who wanted to invest in France did so because of the launching of this fund. Finally, risks’ mitigation requires remaining vigilant and learning about emerging ethical issues at the international level (for instance, the health care support system in Great Britain providing care reimbursements whose amounts depend on the patient’s age) which could concern us in France, in order to avoid them.
- In your opinion, what measures should be taken to ensure that the ethical policies and standards flow through all levels of the organization and involve all stakeholders?
This is a highly complex management issue that requires ascending and descending flows of information regarding strategy, various decisions and ethics. It is a matter of organizational culture. Long lasting companies have a culture taking into account values such as ethics and efficiency. The question is whether management has the ability to organize this information flows and check the implementation of ethical rules. CEOs have a responsibility primarily to create a culture of shared values, strategies and tactics and secondly to integrate ethical rules in their business operations.
- Are there areas where you consider that regulations should reinforce corporate ethical values? In the non-profit sector?
In general, there are already too many rules that make the companies’ management more difficult. I strongly support the reduction of regulations, but I also support stricter rules. The main reason for excessive regulation is that we try to deal with too many different objectives. The modern world needs more simplicity. For example, auditors may continue to have regulations including hundreds of pages regarding independence, or only two lines that say “don’t perform consulting and auditing services in the same company”. The first type of regulation requires expensive and heavy processes, as well as recruiting professionals to interpret ethical rules, even if transparent processes and auditing standards have been implemented. There is still no widespread consensus on the auditing standards’ interpretation. Similarly, you can write endless rules on hedge funds and investment banks, or you can say that the retail and investment banking cannot coexist in the same organization. In fact, most non-profit organizations in France are well-managed, so we need less regulation but as I said before clearer and stricter rules. When the European Commission issues a directive or a recommendation, it would divide by ten the number of pages of the equivalent regulation in the national law. But, today, the European regulation multiplies by ten the number of pages in the national law. After that, no one should be surprised by the rejection of the European Commission by European citizens! There are areas where it is impossible to escape international standards, such as nuclear security. A key question is which authority can prevail in a globalized world. Nobody has the authority, so we expect a consensus, but we don’t know whether it is good or not.
- Should culture constitute an important part of the ethical analysis’ context? What is unique about the ethical culture and the environment in your country that should be taken into consideration?
Cultures vary considerably and are key to understanding the ethical analysis’ context. We need fundamental rules as simple and short as possible in order to be universally enforced. Areas such as safety, nuclear security, and the financial markets require strict and simple rules. In France, we have a cultural divide between the North and the South which is partly Germanic and partly Mediterranean. We have a good track record for issuing a lot of rules, but not respecting them. Our history shows an evolution from being a great country to a medium-sized country. We need to address this trend with less arrogance in global affairs, and recognize that France has no longer the power it had before. When I was a child, the first visit performed by a new US President was in France. This is no longer the case. On the other hand, President Obama should acknowledge that the United States will not remain the most powerful country in the future. The Nordic countries are very intelligent in that respect.
- Do you think globally applicable ethics principles and practices are possible? Desirable?
Yes, as previously stated.
- What is the biggest mistake that people make regarding decisions around ethical issues?
The biggest mistake I see over and over again is the emphasis on independence, from auditors and Board of Directors’ members for instance. The relentless promotion of independence can prove very arrogant and may be a way to escape from ethical process. The real question should be integrity and competence to ensure compliance with proper procedures combined with integrity. Unfortunately, there is a widespread confusion between independence and integrity, and the use of independence may reveal an excuse.
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