No Planet, No People, No Profit

[Dr. Sanjiv Agarwal]

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 8^th to 10^th  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 tress over 33 000 hectares of land.

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.

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 include  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 is the quality of the numbers reported and their sustainability.

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.

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.

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.

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 !!!