We are entering a period in which it is becoming clear that the operation of current economic system will be unsustainable and that to progress, companies in future will have to redefine business success- both, socially and financially. I recently participated at World Congress of Accountants held at Kualalumpur, Malaysia from 8th to 10th November,2010 wherein over 6000 accountants from 140 countries participated. Though we have a large membership base, it was surprising that India was represented by a handful of members (less than 20) including our president and vice president.
While the theme of the Convention was very apt- “Accountants: Sustaining Value Creation”, the coverage was vast spread in four days comprising four plenary sessions and thirty five topics which focused on IFRS- need for convergence, corporate governance, sustainable growth, non-financial disclosures, fair value, value creation in borderless economy, Islamic finance, global crisis, integrated reporting framework, small and medium enterprises and micro finance and human governance etc. Let me share some thoughts on what we need to do now to offer to our children and their children in future.
In a fast growing economy, every body demands short term and instant solutions and this applies to the profession of accountancy as well. However, professional accountants are challenged to sustain long term growth, lead strategic teams, are charged with creating value and act as custodian of assets, are important part of governance process and more importantly provide assurance to regulators, society and users of financial statement of the businesses that operations meet the laid down norms and have passed the test of truth and fairness. Yet, accountants traditionally has been concerned with figures and financial statements but with changing global business priorities and concerns, both businesses as well as accountants now realize that good corporate governance practices can only sustain growth for long, that too with a social face. Today’s need is indeed to weave business strategies with corporate social responsibilities (CSR initiatives) by imbibing concepts like inclusive growth, responsible business enterprise etc. so much so that company’s CSR touches every sphere of life- manufacturing, service, education, health care, environment, society and what not.
We need to develop and implement business models wherein business of business is not to just do business but wherein business and societal development goes hand in hand. In other words, nurturing the nature and society, being environmental friendly and looking after its well being is going to be key to business success, today as well as for tomorrow. One recent example in this direction is Coal India Ltd’s (a mining company) recent public issue of shares, whose issue advertisements revolved around nurturing nature and aforestation activities. It claims to have planted over 70 million trees over 33 000 hectares of land.
The recent scams and global economic crisis have made us realize that the nucleus of corporate governance is human governance. Evidence of white collar crimes has emphasized the call for the business world to shift its thinking to adopt a governance structure which is principle and value based and of course, human centric. Today, we need not only good hardware and software to run the business but also an efficient, ethical and professional human ware – the most important of the three. Human governance provides the internal moral compass for human conduct which includes one’s ethics, values and beliefs. In absence of such traits, no amount of best practices of corporate governance can ensure that an enterprise is governed properly.
New technology and innovative and sophisticated performance metrics have increased the amount and quality of information demanded as well as generated by businesses. It is imperative to understand and identify as to what information will be critical to users of financial report in the future, change in reporting due to technological advances and effect of non financial information on corporate reporting frame work. Today, numbers are important but more important are the quality of the numbers reported and their sustainability.
There is a need for radical economic, social and business shift towards more sustainable practices as we face challenges of global climate warming, carbon footprints, plenty of water with no drinking water and so on . There has to be a proper framework for enterprise governance which constitutes the entire accountability framework of the organization. It has two dimensions – corporate governance focusing on compliance and good practices and business governance focusing on performance and value creation. There is a need for shifting from parameter driven, rule based governance to principle and value based governance. Not only this, Government will also have to take active role in convergence of global accounting and governance norms. The global economic crisis of 2008 has given us learning lessons and if calls for a overall radical change in the manner enterprises do the business and are governed.
A good sustainability report doesn’t have to be long, but it does have to be honest, targeted and share more than just good news. Sustainability should be core to any business. Though sustainability reporting is in a state of evolution, yet many such reports are seen to be produced by the public relations or marketing departments of organizations and are best designed to deviate from the core. GRI is an international network building a common framework for sustainability reporting. Its reporting guidelines are most widely used. However, there is a need to develop an acceptable framework for integrated financial and non- financial reporting. Integrated reporting is a process and not an event. An organization which is serious about corporate sustainability should move towards embedding it into day to day business operations. It requires demonstration of a deep commitment to transparency and a willingness to discuss the good and the bad. It should provide context for sustainability practices in terms of the past, present and future.
There is also a growing debate in favour of Islamic finance. While 23 percent of world population is Muslim, yet Islamic finance is just one percent of global financial assets. The introduction of Islamic finance into the global financial market provides a host of opportunities. Small and medium enterprises account for 90 percent of all businesses, yet they work under tremendous pressure for want of finances, skills and good financial management.
Undoubtedly, Islamic finance has experienced rapid growth in last few years demonstrating its capacity as a competitive , liable and alternative form of financial inter mediation which has well complemented traditional financial system. The increasing demand for more ethical based financing (as a governance tool) which is widely accepted by Muslims and now increasingly accepted by non Muslims is due to the intrinsic values found in Islamic instance finance such as good governance, transparency, fairness and risk sharing, besides the finance also being supported by underlying assets.
Islamic finance is for all. It is a value proposition to every one. It offers a way of conducting financial transactions based on ‘Shariah’ and according to certain defined ethical values. Islamic finance may have elements that are similar to conventional financial products but the fundamental principles remain different. For instance, every such transaction is not based on usury (interest), must be supported by an underlying economic activity and can not be linked with elements that are considered as threats to the morals of a society such as gambling, arms trade, liquor etc.
SME sector need proper nurturing as it plays a vital role in economic and social development, innovation and employment. Almost in all economics, focus is on financial reporting which ought to shift to business reporting encompassing qualitative and non- financial reporting for sustainability information and understanding business risks and performances.
Accountants have the will and role to influence the way organization integrate sustainability into their objectives, strategies, management and success parameters. They can play a role in challenging traditional assumptions of doing business, encouraging and rewarding right behaviors and ensuring correct information flow for decision making besides monitoring and reporting the performance.
We as accountants have a significant role to play in shaping the future of business and what has been stated above- from quality of numbers and non- financial disclosures to climate control. We will also have to play a vital role in protecting the interests of a huge range of stakeholders. Apart from the vigil eye, we ought to build on more and more forward looking skills such as risk evaluation, project appraisal and decision support. The role of acting as custodians of the public interest and corporate guardian will be the key to future challenges.
There is a need for higher environmental accountability from the corporate world by shifting from the ‘more and more from less and less’ approach. It is now an inevitable need to balance ‘doing well’ with ‘doing good’. If this does not happen, we should be prepared for the out come-No planet (earth)! No people !! No profit !!!