Can my accountancy firm be a (profitable) force for good? Absolutely

Blackrock chief Larry Fink caused quite a stir when, in January 2018, he sent his now famous letter to CEOs – announcing that “to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” He went even further in his January 2019 letter.

Capitalism creaking?

It’s not surprising that he’s getting fidgety. Capitalism has achieved a lot over the last couple of centuries, but the current version is hitting the buffers. The IPCC tells us we have just 12 years to take the radical action needed to avoid runaway climate change. By 2050, there will be more plastic in the oceans than fish, by weight. The mass of insects on the planet is declining precipitously by 2.5% pa, with potentially catastrophic consequences for our food system. Meanwhile, twenty-six billionaires control more wealth than 3.8 billion people; and whilst 2 billion people eat too much, 1 billion eat too little. ‘Around the world’ says Fink in his 2019 letter, ‘frustration with years of stagnant wages, the effect of technology on jobs, and uncertainty about the future have fueled popular anger, nationalism, and xenophobia.’

Society expects better of business: it’s our long-term wellbeing at stake

Across sectors, we’re seeing big businesses failing to both please their shareholders and serve their stakeholders. We’re seeing, for example, divestment from fossil fuel companies; big tech challenged by governments and regulators; fashion giants forced to improve human rights in their supply chains, and having to defend the basic assumptions of the fast fashion industry; consumer goods majors belatedly pledging to tackle the plastic scourge; and customers ‘boycotting’ brands that do wrong.

It’s no longer a CSR thing

A decade ago, most CFOs – and their accountants – would look upon societal and environmental challenges as the responsibility of the CSR manager: do some CO2 and waste reduction work, and a philanthropic programme, and we’re sorted.

Those times are over. There’s an urgent moral duty for business to act, but even if you set that aside, these issues are now material for every big company’s business model and balance sheet.

On the risk side of the equation, reputation risk and environmental (esp. climate) risk management loom large in many sectors. “In many ways it’s about survivability”, says Adam Williamson, Head of Professional Standards at AAT – “there is no point looking at short-term financial gain if the company does not have a long-term future.”

On the opportunity side, the Business & Sustainable Development Commission calculated that sustainable business models could open economic opportunities worth up to US$12 trillion and increase employment by up to 380 million jobs by 2030.

There’s also evidence that people are increasingly expecting companies to take bold action. According to last year’s Edelman Trust Barometer, 64% of people globally expect CEOs to lead on social change rather than waiting for government intervention. And according to Cone Communications (2016), 79 percent of US millennials consider a company’s social and environmental commitments when deciding where to work. 

Purpose-driven business is the way forward

So, it’s no surprise that purpose-driven business, once the domain of niche companies like Patagonia and Body Shop, has hit the mainstream. ‘We are at a turning point,’ said Paul Polman, until recently the CEO of Unilever. ‘Only businesses that help people and planet thrive will succeed.’

What are the characteristics of a truly purpose-driven business? Let’s start with these four:

• Takes a wider view of the ‘system’ in which it operates – e.g. the fashion/clothing system, or the global financial system – and the ambitious, positive role it can play to make that system work better for all, over the long term.
• Articulates a compelling organisational Purpose – ‘a meaningful and enduring reason to exist that aligns with long-term financial performance, provides a clear context for daily decision making and unifies and motivates relevant stakeholders.’ (Hurth et al).
• Engages and works collaboratively with employees, customers, suppliers and other stakeholders to create value – not just for investors/shareholders, but for all stakeholders over the long term – including communities and the environment.
• Makes a healthy profit but sees profits as a necessary precondition for doing something useful in the world, and a natural outcome too – not the primary goal. 

The fact that profit isn’t the primary goal doesn’t make purpose-driven companies less profitable. On the contrary, companies that lead with purpose are more than twice as likely to be profitable (Source: Keller, V. The Business Case for Purpose, HBR 2015).

What does this mean for accountancy firms? Lead the way

I’m no accountant, but I have experience of helping accountancy firm clients embrace the purpose opportunity.

At the very minimum, every firm should have a point of view on the future of business in society; and how environmental, societal and economic changes will affect business value creation in the short and long term.

Next, it requires a significant up-skilling of staff to be able to evaluate and advise on different types of value creation opportunities and company risks. Depending on your client base, you’ll need expertise in areas such as climate risk, human rights and integrated reporting.

Finally, there’s no better way to build your authority than to be purpose-driven as a firm – yourselves. It’s a fabulous opportunity to show your clients that you’re leading by example; to engage your staff in meaningful, leading-edge work; and to build pride that your firm is playing its role to shape a positive future for the world of business