The battle to make and keep businesses sustainable
If the accountancy profession ever needed an example of how to truly demonstrate its purpose, the current Covid-19 pandemic must be it. With the global economy caught up in a ferocious struggle with the crisis – in particular, trying to survive the associated containment measures and industry shutdowns – the role and purpose of the professional accountant is has come to the fore as never before.
Within a month of the Covid-19 outbreak in China, analysis by professional accountants, professional bodies and government agencies saw skillsets from across the business and financial world brought together in a collaborative endeavour to provide insight on the likely economic impact by producing modelling forecasts for the world. Practical business, accountancy, tax and assurance guidance is now being developed for organisations of all sizes by professional accountants. And they will be the ones who help organisations navigate this unprecedented global systemic event and return the world to sustainable economic growth.
This is one of the conclusions of a new, far-reaching ACCA study that investigates the pivotal role that accountants can play in how organisations create, protect and communicate their long-term value.
Central to value
In Accountants, Purpose and Sustainable Organisations, the report’s author Sharon Machado, ACCA’s head of business reporting, describes not only the challenges facing organisations around the world, but the central role that professional accountants will play in supporting and promoting these organisations as they seek to demonstrate sustainable value to investors and other stakeholders.
‘Accountants recognise that to be a sustainable organisation you need to think beyond just making profit,’ Machado says. ‘This means working with all resources – not just with financial capital, not just with investors, but with social, intellectual, natural and human capital.’
Drawing on ACCA’s resources and on external sources, the report shines a light on how a focus on the public interest, backed by a clear grounding in ethics, plus business and financial expertise developed through lifelong learning, puts professional accountants at the centre of sustainable organisations. This is the essence of what it means to be a professional accountant in the modern world.
As the report says: ‘Across almost every aspect of business, professional accountants help organisations navigate challenging and competitive operating environments, thereby creating new value streams. Equally, the profession retains fundamental stewardship responsibilities for protecting the value created for the long term, and for communicating organisational action and performance in a transparent, reliable and responsible way.’
Machado points to six key drivers of change that all organisations face, irrespective of the current pandemic. The first of these is digital innovation. Technology is transforming how businesses go to market, not only opening up new growth opportunities, but also creating new competitive and organisational threats. Challengers are rapidly attacking more established and complex organisations, offering wider and easier access to products and services that until recently would have been out of reach for many consumers. This wave of disruption also extends to the public sector, which provides many more services to a wider swathe of the population.
The second challenge is social and environmental capital. There is a growing public expectation that businesses should act as good corporate citizens, serving a far wider set of stakeholders than just their immediate shareholders. Organisations have to manage a tricky balance between what are often mutually exclusive stakeholder wishes.
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Then there are shifting national demographic trends, which create business threats and opportunities in equal measure. The shape of the workforce in many countries is transforming, and consumer diversity is mounting. Sustainable organisations will be adapting to these changes.
The fourth challenge comes from the need to weather global systemic shocks. We are currently living through the impact of Covid-19, having previously endured the financial crisis of 2008, which threatened the near-collapse of the international banking system. Who knows where the next shock will originate?
Perhaps it lies in the fifth challenge of geopolitical shifts. Trade wars, the break-up of economic blocs, and political and social instability present both opportunities and threats. Business does not like uncertainty, but uncertainty can be the catalyst for innovation in business models and operations.
Finally comes regulation. Too much, and creativity and innovation are stifled. Too little, and opportunities abound for the ruthless squeezing of social and environmental capital.
These six drivers are key to how accountants evaluate their purpose, according to the report. ‘In organisations, there are very few roles that can encompass these drivers in the same way that accountants can,’ Machado says.
Accountants serve the wider public interest. It is, if you like, in their DNA. Whether by capacity building and supporting the development of communities and national economies, or by setting standards and frameworks within with organisations can legitimately operate, accountants are well placed to serve and protect the public interest.
They are also value creators. As the report says: ‘The ways in which a business creates value are influenced by its business model, its strategy, and the particular goals of the organisation.’ Professional accountants are essential in the formulation of strategy and the allocation of capital, and key to understanding and directing appropriate investment strategies to create long-term value for the business. They help set appropriate strategic and financial goals linked to the purpose of the organisation. And they are protectors as well as creators of value: organisational success needs protecting, and value creation has to be sustainable.
Organisations need to tell stakeholders their story, and accountants are well placed to communicate one that is ‘true and fair’. Whether it is how the organisation is adapting to the challenges set out in the United Nations Sustainable Development Goals (see page 28), or reporting the impact it has on the environment and society, accountants validate the story.
The report concludes by highlighting accountants’ ethics, integrity, and technical and professional expertise, as well as the elevated connectivity that comes from their business, regulatory and societal networks. ‘Accountants need to understand just how valuable they are,’ Machado says. ‘They need to be at the centre of good business.’
Six of the toughest
The six main challenges for today’s financial professionals, as identified by ACCA’s report Accountants, Purpose and Sustainable Organisations, are:
– social and environmental
– shifting demographics
– global systemic shocks
– geopolitical shifts
Philip Smith, journalist
This article was first published in the June 2020 China edition of Accounting and Business magazine