At times of turmoil, whether caused by natural events or through shortcomings in human behaviour, we typically stop and reflect on what's important in life. This very process is often based on a very simple analysis, which typically tries to unearth the basic building blocks on which we rely. In the case of a natural disaster the focus moves quickly to the building blocks of life - food, heat and water.
In responding to the market meltdown of the last few weeks, perhaps we should be applying the same sort of logic. One thing I have learnt over the years is that most directors have one thing in common; it's an ability to cut through the clutter and turn complex issues into things the ‘common man’ can understand.
But is this something directors today feel able to do? Have we made business too complicated? Have we made the reporting and regulatory model too complicated so that even our best business men and women feel remote from the businesses they run? Or have we created a world where they feel unable to move without some specialist there to explain what's really going on?
Well this leads me to one of my recurring bug bears, how accessible is the current reporting model to those that should be responsible for it, those that use it and those that audit and regulate it? I recently ran a seminar on reporting for non-executive directors and was not surprised to find that most of them felt unengaged and remote from this critical measurement and communication tool for which they are meant to be responsible.
I hope this issue is not lost when we stand back and learn the harsh lessons of the last 10 years. Above all we must question the utility of the financial reporting model and in doing so be really clear about the cost benefit that accrues to prepares, users and regulators. You may be interested in a related article I wrote for Accountancy Age last week entitled - The shifting sands of cost benefit.
The article focused on the priorities of the IASB and poses the question of whether its time to establish a new agenda focused on the real needs of users.
I'm sure that many of you have been following the spectacular launch of the £4.4 billion Hadron Collider project situated close to Geneva. The project, centred on a 17 mile long ring buried 300ft below the French-Swiss border will accelerate two streams of particles moving in opposite directions at almost the speed of light (670 million miles per hour). The point of impact, scientists believe, will recreate the conditions just after "big bang" and the hope is that in so doing the secrets of the universe can be unlocked.
For those of us who have not done a PhD in astrophysics, getting one's mind around an experiment of this magnitude is difficult to do. And what you may be asking has this to do with the world of accounting and corporate reporting? The linkage is the fact that the scientists in Switzerland in many ways are doing what accountants and business managers do on a daily basis - they're trying to measure and interpret activity. Clearly this may be the only link - £4.4 billion on an ERP system might be a bridge too far for most companies.
As I thought about this issue I was reminded of the article in the FT a couple of weeks ago entitled 'Counters face up to green beans'.
The article considered how the sustainability landscape facing companies is changing and how the audit profession is beginning to respond. What really caught my eye and is the link back to the experiment in Geneva, were the comments below from Louella Eastman, group CSR director at insurance group Aviva and a steering group member of the Accounting for Sustainability project.
"Last year, we decided to use the environmental indices in the annual report and we had to partner with finance as we didn't normally collect the [financial] information. The learnings were profoundly more interesting than I expected." The connection of the two produced strategic change: "It became a discussion about cost," she says, "and for example, we moved our cleaners on to a day-shift from evenings and told the security staff to switch the lights off.” Put simply, the change came from connecting CSR information and personnel with the finance function. Louella went on to say "It was astonishing. It made the information more useful and gave us new insights." Furthermore, and perhaps most critically, this process in Louella's view has helped elevate carbon onto senior executives’ objectives.
This may not be a major "big bang" moment for many, but it should not be under estimated. It highlights a critical weakness that exists in many companies today, namely that there are many critical activities that have become siloed and isolated from each other. Understanding this issue, identifying the critical linkages and creating the environment where a few collisions take place may create the opportunity to unlock real corporate value.
On the larger subject of unlocking the universe, I suggest we leave it to those remarkable scientists in Switzerland.
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