It was against the backdrop of accountants being derided in the media about their role in what some see as the unfairly lenient taxation of large companies that a panel of experts in social value took the brave decision this month to ask ‘Can accountants change the world?’ An audience at the Social Value Summit in London heard from two panellist who have tried to change accounting practices to be, in their eyes, more ethical, and another speaker gave the audience her view on the premise of the debate – even touching on quarterly reporting.
Tim Haywood said there was not the contradiction people may think about being both the Group Finance Director and the Head of Sustainability of FTSE250 company Interserve. He told the audience: “I did not leave my accountancy qualification at home [when working on sustainability]. How accountants can change the world is how to bring that suite of disciplines, measurement, traceability and data analysis, which can often be used against these things [sustainability] to actually support a business case that has a broader perspective.” You need tools to deal with complexity and an agile mindset to assess what good looks like, he added.
Haywood said that companies are facing a crisis of trust, which includes people’s demand for fair taxation. “Who believes in big business when they are seen as greedy and profiteering?” he asked. Haywood said his own construction business faces a further existential threat which is a shortage of workers and it needs a 'unique selling point' to attract and retain staff. “We need to offer more. This [social value] is enlightened self-interest.”
Accounting-wise, Interserve measures the success of its socially-conscious business plan against metrics that cover and show the connections between social capital, knowledge capital, natural capital and financial capital, quite different from just a p&l and balance sheet.
He said: “You cannot have a separate sustainability and a separate business strategy, they must be the same. Not everything that is valuable can be valued, sometimes you have to ask does this feel like the right thing to do. If you try and measure everything you will fail and miss good things. You must have some basis of rigour and don’t forget the qualitative stuff to back up the quantitative– it is a hearts and minds agenda. You need top down management, because it may not happened organically. “
"There is something about [the language of] finance that separates accountants from us (the public)"
Fellow panellist Ben Wielgus, Associate Director of Sustainability Services at KPMG, said: “Accountants are one of the biggest barriers we possibly have because they control the finance… but they can be fantastic if they are on-board.” He said that externalities have historically been excluded from the measurement of corporate value but this disconnect between corporate and societal value is disappearing. He disagreed that to understand a business you need to look at the accounts, telling the audience about a KPMG report called New Vision of Value which found that 40 years ago 80 per cent of the value of a business was based on its accounts (assets and revenue), now 20 per cent of the value of businesses are based on that.
At KPMG it works out the profit and on top of that, it looks at the amount of tax it pays back to society (that should be used for public good) deducting any corruption that might affect that tax, such as evasion. It then looks at social good such as the value of the education advice it gives to staff and any input to schools and then deducts negatives such as the number of injuries to the workforce.
He said: “We end up with the true earnings of the business. Using a set of academic studies, you can convert all of these to numbers (a common currency everyone understands). It is a materiality assessment rather than really accurate numbers. There are drawbacks: it is a profit and loss, net contribution per year but I am more interested in a balance sheet e.g. how much human capital are we creating [as opposed to] destroying as a whole.”
KPMG's latest project is Relational Balance Sheets, which measures the direction of travel a company has in its relationships with shareholders, customers, suppliers, employees, community and regulation, rather than converting them to stats used in the finance world.
Anna Laycock, lead strategist at Finance Innovation Lab, said accountants can change the world because they are drivers of how we define and understand and make judgements on value but they are also part of a much bigger system geared towards turnover.
She said: “There is something about [the language of] finance that separates accountants from us: derivatives, capital, bonds, debentures it is alienating. It keeps us outside finance and we become excluded [and it] makes people feel they cannot change things.”
Laycock added that there has been a lot of ‘natty stuff’ to do with accountancy but it is not changing the way accountants work, just the way accountancy is administered.
She said that ‘liabilities are too narrow’ on balance sheets and asked about the accuracy of quarterly reporting ‘because it is not like a business does stuff and causes an impact for a quarter and then the impact stops’.
Blog by Hamant Verma, External Relations Officer, the Chartered Institute of Taxation