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Thursday, 11 Jun 2015 (revised date: Thursday, 11 Jun 2015)
Jeffrey Jones


Roger Forder, Treasurer

The Society’s financial year corresponds to the calendar year and our 2014 accounts have now been put to bed, so the May issue of Inside OR provides a good opportunity for me to bring members up to date on the Society’s finances.  For some, at least, I recognise that this is not as interesting a topic as my Board colleagues are able to address, but it does, I hope, serve a useful purpose, given the inevitably more daunting format of the full accounts that will be available on the website in the near future.

That said, I am sure that members would not want the accounts, or the Treasurer’s job, to be “interesting” in the sense of the supposed ancient Chinese curse “May you live in interesting times” and, thus far in my stint as Treasurer, I am glad to report that they have not been.  However, my experiences do illustrate another clichéd quotation:  “Prediction is very difficult, especially about the future” (possibly Niels Bohr, but there are other attributions as well).  This has proved to be the case regardless of whether we are looking long-term or short-term.

 As most members know, the Society derives a very high proportion of its income from its academic journals and any significant diminution in this income stream could indeed make for interesting times.  For some years, therefore, the Board has been concerned about the possible impact of the move by governments, both in the UK and elsewhere, to mandate ‘open access’ publication of the output from publicly funded research.  Only a few years ago, there was a concern that this could happen quite quickly, and we increased our reserves as a precautionary measure.  Since then, the debates have continued, the polices are being implemented, but there has been no diminution in the number of papers submitted to our journals for publication in the normal way.   Part of this is because many of these papers originate in parts of the world where the open access bandwagon has not yet got underway.  Whatever the reason, the bottom line is that we are still not feeling any significant financial effect from open access.  However, we are by no means complacent; it seems highly likely that something will happen, but it is currently impossible to predict the timescale and the impact on our finances.  We may, perhaps, hope that the (unique?) ability of learned societies, like ours, to orchestrate the impartial peer-review process will continue to be a valuable, revenue-earning asset, regardless of how the current system evolves.

 Whilst longer-term unpredictability remains, last year was notable also for short-term unpredictability.   Throughout 2014 we had expected an outturn for the year that was fairly close to the breakeven point on income and expenditure (not dissimilar to the situation in 2013), although whether this would be on the deficit or surplus side tended to oscillate from forecast to forecast as the year developed.  But when the actual results for the year became available, it turned out that we had registered a substantial surplus of some £93k (about 9% of turnover).  The primary reason for this was a quite unexpected last-minute enhancement to our journal income resulting from some purchases of ‘back-file’ archives by institutions, no doubt with end-of-year money to spend.  (By the way, it should not be assumed that these institutions were in the UK!)

 This was, of course, a very pleasant surprise, but to the congenitally cautious it served also as a reminder that surprises are out there, and we cannot, of course, always assume that surprises will be in a positive direction. 

 Another unforeseen development was the announcement, earlier this year, of the planned merger between our journal publishers, Palgrave Macmillan, and the Springer publishing group as part of a joint venture to be established by the owners of the two companies.  Whilst there is absolutely no reason to believe that this will have a detrimental impact on the Society’s journals or the associated income stream, it is nevertheless a reminder that our publishing operations are set in a commercial context where times are often “interesting”.

 All this means that we continue to keep the size of our reserves under review to ensure that they could provide us with at least some short- to medium-term resilience to shocks and surprises.  At the moment we aim to keep our reserves at the level of one year’s income and expenditure, currently about £1m.  At year-end we actually had about £1.25m in our investment fund, so we continue to have scope to underpin new initiatives in support of our charitable aims, including, of course, services for members.   Some of these initiatives are already firmly underway:  the first edition of the new Impact magazine should be on the streets by the time you read this and Louise Allison, our new strategic projects manager, is busy progressing key actions on the membership and analytics fronts.  However, we are in the fortunate position of being able to do more and the Board has a number of proposals to consider.

 Of course, management of our reserves poses some interesting questions of risk versus reward in the context of an unpredictable future.  Management of a £1m+ investment fund is not something to be taken lightly and the Society employs Investec, the well-known investment banking group, to undertake this for us, working to a fairly detailed mandate agreed by the Board.  Investec’s actions and proposals are reviewed by the Society’s Investment Committee, chaired by the Treasurer, which meets twice a year. 

 I wasn’t in post during the financial crisis of 2007-2009, which definitely counted as “interesting times” and which must have given the then Treasurer a few sleepless nights.  But, since then, our portfolio, with its high proportion of equities reflecting our long-term investment perspective, has done very well.  Recently, though, the Board has approved a modest change in policy which will have the effect of reducing slightly our overall equity component and also increasing the level of geographical diversification within that component.  This will go some way to reduce risk and volatility and, to an extent, crystallise some of the gains that we have made over the last 2-3 years.  Our new posture, which is very much in line with that adopted by charities in general, was seen by the Board as a judicious move in current circumstances and a useful hedge against those unpredictables that are always threatening to make the Treasurer’s life more interesting than he would wish.



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