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Crisis with a legacy: can we build something better?

Author: ICAEW Insights

Published: 27 Apr 2020

Can accountancy rise to the challenges presented by the COVID-19 pandemic and become part of the solution? Now more than ever, the leadership of the profession is needed, argues ICAEW Chief Executive Michael Izza.

In the wake of the 2007-8 financial crisis ICAEW hosted a series of high-level roundtables across the world. We asked: was it a crisis without a legacy? Looking back, we would have to say that there was a legacy but maybe not what we hoped for. The way the financial crisis played out contributed to the undermining of belief in international organisations and a retreat into nationalism. It would also be fair to say that the lessons of that crisis were not learned. More specifically, we have to confess that the accountancy and finance profession did not come out of it well and that we dodged a bullet.

A series of corporate failures and audit shortcomings later and the profession is at its watershed moment as we now face another crisis. Much as the mainstream might want to call the coronavirus a ‘black swan’, it isn’t. There was too much discussion and reference to disease and pandemics in the mainstream for this to be a black swan.

Last October, The Johns Hopkins Center for Health Security, World Economic Forum, and Bill & Melinda Gates Foundation held Event 201. While not a predictive exercise, this desktop simulation of a hypothetical pandemic was entirely scientifically plausible. To quote from the resulting recommendations document:

“The next severe pandemic will not only cause great illness and loss of life but could also trigger major cascading economic and societal consequences that could contribute greatly to global impact and suffering. Efforts to prevent such consequences or respond to them as they unfold will require unprecedented levels of collaboration between governments, international organisations, and the private sector. There have been important efforts to engage the private sector in epidemic and outbreak preparedness at the national or regional level. However, there are major unmet global vulnerabilities and international system challenges posed by pandemics that will require new robust forms of public-private cooperation to address.”

Or have a look at the last 15 years of the World Economic Forum’s (WEF) annual Global Risk Reports. Diseases and pandemics appear enough to know they were a major concern. Looking at the connectivity of the infographics in the WEF report and Event 201, this swan came with strings attached and we knew it.

Is now the time that the accountancy profession rises to the challenge and becomes part of the solution? Chartered accountants create trusted information and insight, which inform our understanding of the world and the resulting decisions that shape our lives. Comprehending and making sense of risk, uncertainty and opportunity and helping craft a way forward through the storm is what we do. As whole new vistas of risk rapidly open up, now more than ever the leadership of this profession is needed.

Will there be a legacy?

As this disaster evolves, we are now seeing an increasing focus on what the world will be like on the other side. Many voices are seeing the opportunity for pressing the reset button and achieving something better. If the metaphor of World War Two is good for how we have responded to the virus, then there are two questions about winning the peace: who is writing the Beveridge Report; and what will the Marshall Plan be?

In parallel, whilst we all accept that right now we are ‘all hands on deck’ firefighting, we must acknowledge that coronavirus is a chapter of a wider unfolding gruesome-threesome of climate emergency, massive biodiversity loss and increasing inequality. We cannot lose sight of this bigger picture. In fact, as a profession of problem solvers we must learn from how society is responding to the virus but also think about how to build on that.

We cannot continue to look the other way

As I am writing this (22 April) I am conscious that today is not only Earth Day but its 50th anniversary and the UN Secretary-General, Antonio Guterres, has marked the occasion by calling on us, despite the impacts of the coronavirus pandemic, not to forget the "deeper environmental emergency" we face.

Before the coronavirus, we were content to ignore what the science was telling us. Nearly 30 years after the Rio Earth Summit, when climate change and biodiversity were put on the UN agenda, there have been many worthy reports, initiatives and declarations. All were well-intentioned but in truth all the reasoned argument, science and ambition hasn’t moved us on much.

The past two years have been our wake-up call. Our Greta moment of grassroots activism and our corona moment of a lived experience mean that much like Wilberforce said about slavery “You can choose to look the other way but you can never again say that you did not know”.

We must understand where we are now in a systematic way

We have also tended to ignore the connectivity of issues, putting climate change, change of land-use, intensification of agriculture and livestock breeding, growing inequality, and so on into different buckets. This enables us to ignore their interdependencies, which drive them exponentially. In recent years, this has begun to change.

The WEF risk report is a great example of how risks are represented in an interconnected way. The emerging narrative of capitals thinking, with its focus on how business and economic success is rooted in thriving societies and nature, is also a demonstration of how connected thinking is becoming normative. However, the coronavirus crisis is an object lesson of this.

What began as a virus jumping species as a result of deforestation, intensive agriculture, climate change, wildlife trafficking and wet markets, rapidly became a human health crisis. This has become a global economic crisis. It has laid bare existing inequalities and became a reinforcing feedback loop for others.

It has highlighted institutional fault lines: getting cash into the business community has been challenging and the fragility of charities’ funding at the moment they are needed most has been exposed. Thinly capitalised businesses have and will continue to fail as they lack any resilience.

In addition, various groups in our societies have been left behind. The elderly have been forgotten or triaged out of help; the poor, refugees and people in prison cannot isolate physically and don’t have the same access to health as the wealthy. Lockdown has forced victims of domestic abuse to become prisoners of their abusers, caused civil unrest, enabled the wholesale removal of human rights, often without question, and facilitated the worst excesses of dictators.

Oxfam’s report Dignity not Destitution published this April highlights the disproportionate effect the coronavirus is having on the developing world as well as on the vulnerable and women. The report estimates potentially half a billion people are being pushed into poverty.

This interconnecting web just keeps expanding and reinforcing itself.

A way forward has to be one that brings together the needs of economy and society but one that is rooted in nature’s carrying capacity

Positive solutions that work for all

It is true there are positive stories. We have seen communities pull together. A recent YouGov survey commissioned by the RSA's Food, Farming and Countryside Commission (FFCC), and The Food Foundation reports that most people in the UK wanted to alter their lives in some way after the pandemic. Only 9% of people said they wanted life to return to how it was before. 54% agreed with this statement: "I hope to change some things about my life and I hope we will have learned from this as a country."

The coronavirus has reduced pollution and we can all experience the joy of birdsong and clear skies. We have also discovered that we can take the homeless off the streets and pay people a basic income (although these will come at a cost to some).

However, human, social and economic capital has taken a battering. We are experiencing a taste of what nature has been subjected to for decades. This is devastating value destruction and it will take years to rebuild this capital.

So, the solution has to be one that works for us all and the planet. As businesses, if we do not solve this our liabilities will be beyond measure and our assets will have no value. Just like the Beveridge Report argued for a better deal for all, so must the post-corona recovery. This isn’t just the narrative of the sustainarati. A recent Financial Times editorial titled Virus lays bare the frailty of the social contract noted:

“Beyond defeating the disease, the great test all countries will soon face is whether current feelings of common purpose will shape society after the crisis. As western leaders learnt in the Great Depression, and after the second world war, to demand collective sacrifice you must offer a social contract that benefits everyone.

“Today’s crisis is laying bare how far many rich societies fall short of this ideal. Much as the struggle to contain the pandemic has exposed the unpreparedness of health systems, so the brittleness of many countries’ economies has been exposed, as governments scramble to stave off mass bankruptcies and cope with mass unemployment. Despite inspirational calls for national mobilisation, we are not really all in this together.”

The EU and governments across the globe are talking about post-crisis development plans that are green and just. Some commentators are even suggesting that a green rebuild will be cheaper than a return to pre-crisis business as usual.

We now have an opportunity to ensure that the choices we all make now, create a pathway to that better tomorrow rather than back to where we left off. We have a vision of what that looks like in the Sustainable Development Goals, which through the 17 outcomes they describe, offer a framework for the rebuild. We also have an opportunity to change the way we make those choices to one that is collaborative and inclusive as well as issue-driven.

As we applaud our key worker heroes at the front – and in that newly acquired admiration for them, value them better – we might reflect on what will be the story we tell about what the accountancy profession did in the war against the virus?

What is the accountancy profession’s role?

This profession emerged at a time of corporate crisis in the 19th century. This time we can say the accountancy profession is working as “business-first responders” keeping the economy going in its direst moment; helping channel the oxygen of cash into businesses and nurturing their organisations and those they advise through this period, necessary for holding things together.

Then maybe we could say we were part of the rebuild; that we helped operationalise the post-coronavirus Beveridge Report and the Green and Just Marshall plan. The profession did what it has always done: made sure that all that was promised was delivered.

Please, please do not let us be the ones who learned the lesson of this crisis by developing yet another new disclosure framework; this time for coronavirus. We cannot be the ones who plotted the audit trail of our destruction.

Collectively we need to question if the institutions of government, of civil society, of business and markets and, yes, of accountancy and finance, are fit for purpose. Do we have the courage to learn from this crisis and then adapt and evolve to meet this greater evolving crisis and develop new industries and products? Can we become change agents challenging the status quo in our organisations and with our clients, charting a route to the new world? Or will we continue to hold conferences and talk about it?

This is the profession’s moment: as I have said chartered accountants are in the business of solving problems and this is a problem like nothing we have ever seen. As a profession we must ask: what does this mean for each of us personally; what does it mean to the organisations we advise or work in; and are we professionally ready?

For the latest news and guidance on the ongoing impact of COVID-19 for businesses and accountants, visit ICAEW’s dedicated coronavirus hub.

Can the tools of finance build back better?

ICAEW CEO Michael Izza recently contributed to a World Economic Forum article in which he talked about accountancy professionals as “business-first responders”, helping to channel the oxygen of cash into businesses and nurturing their organisations and those they advise.

Michael Izza