Business scandals of the last decade, caused by companies such as Facebook, Volkswagen and in 2008 the banking sector at large, have prompted a major global research project to reconceptualise the role of corporations in our society. Led by The British Academy – the UK’s national body for the humanities and sciences, The Future of the Corporation programme, brings together 13 separate research programmes to consider the challenges businesses face today and rethink their role, beyond profits. Reforming Business for the 21st Century summarizes these findings and suggests the need to develop a new framework for the corporations around several interconnected principles.
As management accountants, we play a key role in driving trust in business, and this research is of particular interest because it ties in with our own work around how organisations of all kinds can better manage this vital, but intangible, asset. You’re in a great position to help all organisations change how the role of trust is understood. We work as guardians of the business model and enablers of growth. We provide key management information to support the company’s decision-making process including, how their business model links to its overall strategy, impact on external resources and capitals, and how they create value.
This project carries a clear message for businesses worldwide who are not operating in line with public interest: your bottom line will suffer. A company’s wrongdoings can no longer be contained to a few lines in an annual report. The internet and the technology behind it, has revolutionised how we communicate and increased accountability. Consumers have more power than ever before, and they know the value of their voice. They know that their view of a business, their level of trust, respect, or desire can make or break a brand’s reputation. And over recent years we have come to see reputation is a seriously valuable [intangible] asset.
With so many changes happening in the corporate world, one could argue that Friedman’s widely accepted doctrine from his book Capitalism and Freedom is no longer fit for purpose. The parameters of this framework are that businesses should make a profit as long as they stay within the rules of the game and do not harm society. Yet, it does not take into account key modern elements such as businesses’ impact on the environment, inequality, and social cohesion. For this reason the Reforming Business For the 21st Century initiative is calling for businesses to work to a new framework based on three principles:
- Purpose: A company’s existence should serve public purpose.
- Trustworthiness: Each business needs to proactively commit to trustworthiness and make it central a central part of their corporate purpose.
- Values: The working environment should enable clear corporate values supporting the company’s purpose and commitment to trust.
Finance professionals’ role in making sure a business is sustainable shouldn’t be overlooked. As explained in our Managing the Trust P&L toolkit for boards, the board should be acting as the guardians of trust and the reputation of their organisation, and can source valuable insights and analysis from their finance teams to create the Trust P&L dashboard. This would allow them to check if trust in the business is strengthening or weakening. The guide will also give boards the tools they need to set the strategy, purpose, and core values of the company. This is critical to success as corporate culture. How employees behave is the lifeblood of a business. It can help organisations with forward compliance meaning they are more likely to operate in the margins their own legislation predictions rather than the current one.
The Reforming Business For the 21st Century initiative shows us that despite some legislation lagging behind, the public should continue to expect more from businesses. Therefore, it makes good business sense for all firms to be more aligned with public interest. Any argument against is short-sighted.