An overview of Corporate Responsibility

Corporate Responsibility: New Opportunities for Chartered Accountants?

Corporate responsibility is an important topic, high up on the corporate agenda with companies recognising it as a major business driver. We believe that the accountancy profession has a central role to play in Corporate Responsibility and cannot afford to ignore it.

We are now taking forward the Institute’s Corporate Responsibility programme in a series of focus groups across the regions and are looking for your input and participation in those, and for volunteers for our Corporate Responsibility committee.

What do we mean by Sustainability and Corporate Responsibility?

Corporate Responsibility is an emerging field, whose terms and parameters are still developing. As a result, what constitutes Corporate Responsibility, and where its boundaries should reach to, are widely and actively debated, often from passionately held and strongly opposed positions. As a starting point therefore we offer the following set of definitions:

• Sustainability is the goal we are seeking: a planet where, to quote the Brundtland Report, we can meet “the needs of the present without compromising the ability of future generations to meet their own needs"

• Sustainable development is the process by which we achieve sustainability

• Corporate responsibility describes the actions, activities, obligations of business in that process. If we want our businesses to be sustainable in the long-run then the resources they rely on must also be sustainable. These include not just the raw materials, energy and so on that we use, but also the less tangible resources that are increasingly important to the successful enterprise today - our human and intellectual capital, our relationships with communities, governments, consumers and other stakeholders. The goodwill of each of these is necessary to the long-term success of business.

What role does the Chartered Accountant have in Corporate Responsibility?

Although Corporate Responsibility is a growing issue, it is not well understood and, although it is a high priority for CEOs, governments and civil society, there remains confusion about how to do it, how to report and measure it and how to assure it.

These are clearly areas that Chartered Accountants have expertise in, but we believe that accountants have a far greater role than these rather self-evident, if important ones, as they are involved at the highest levels of business decision-making.

In October 2004, as part of its Information for Better Markets series, the Institute published Sustainability: the role of accountants, which explores in much greater detail the issues of Corporate Responsibility. The report employs a market-based framework to examine the mechanisms through which individuals, society and governments can direct market activity towards more sustainable and responsible outcomes.

The successful functioning of these mechanisms depends on the availability of accurate and reliable information, and on the systems, processes, policies and strategies that support them. In many cases the management of a company or its stakeholders may also want assurance that that information is accurate and reliable.

Moreover, the high-level strategic decisions around Corporate Responsibility issues depend on the accurate and insightful analysis of this information. Corporate responsibility is, therefore, very much the domain of the accountant; we believe that it is our natural territory.

Thus Chartered Accountants could expect to be involved in a huge range of activities. These could include: implementing energy efficiency (and thereby cost-saving) measures; the formulation and implementation of Corporate Responsibility policies; designing management information systems - e.g. around tradable permits and carbon emissions; assurance of supply chain processes and procedures; the generation and presentation of Corporate Responsibility information for stakeholders, rating agencies and for regulatory authorities and government agencies; and the calculation of environmental taxes and grant claims.

Why is Corporate Responsibility important?

Whilst we have discussed what we mean by Corporate Responsibility and made a case for a significant role for Chartered Accountants it is important to note that Corporate Responsibility is no longer just a public relations exercise but is a strategically fundamental driver for business.

This is both as a source of risk – from the reputational damage that can be done by “bad” behaviour - and of opportunity: companies that are more efficient in their use of energy, for example, will have lower cost bases but will also make fewer emissions.

Essentially, the definition of Corporate Responsibility that we have used is what might well be called “the business case for Corporate Responsibility” definition, which argues that companies that are responsible will, in the long-term, be more successful.

Attention to social, environmental and economic aspects of business activity and performance is increasing from customers, suppliers, investors, pressure groups and the community. In a sense each group’s support gives a company a license to operate and without that support a business may find its license removed, impairing its ability to operate effectively and damaging its performance over the long-term.

Thus firms that misbehave will find fewer and fewer trading partners, consumers will stop buying their products, host nations will withdraw licences or impose fines, local communities will withdraw their support and possibly become hostile and workers will become de-motivated and unproductive. In addition, investors will stop buying their stock, and existing shareholders will sell, banks will increase their lending rates and the cost of capital will increase.

Our definition that good corporate citizenship makes good business sense means that business must put Corporate Responsibility at the centre of its activities. It also follows from this that business must engage in Corporate Responsibility in a wholly different way, not as apologist but as leader of the debate.

All of this means that the Chartered Accountant’s role in Corporate Responsibility is a highly significant one that goes beyond reporting and assurance. After all, our members play a crucial role at the top of British business. Over 50% of the FTSE100 CFOs are our members and we can count at least one of our members on the board of over 90% of the FTSE350.

It is important therefore that our members are fully equipped to engage not only in Corporate Responsibility reporting and assurance but we also need to make sure that at the strategic level they are properly informed about Corporate Responsibility to keep them in the mainstream of business decision-making.

To this end we must focus on the continuing professional development (“CPD”) needs of our members and indeed members should be reflecting on the skills they will need to meet the expectations people have of them as qualified professionals.