Should CPAs be the conscience of the economy?
The greater demand on corporations as they grow in size and influence, along with consumer and investor expectations, are creating the ideal environment for CPAs to serve as the business world’s conscience, said Jan Herringer, president of the New York State Society of CPAs.
Speaking at a meeting of the Accountants Club of America Thursday at the Princeton Club in New York City Herringer, who also serves as a partner at BDO USA, argued that while the role of morality guide for accountants “might seem dubious at first, when you think about it, it was what the profession was built on … a code of professional ethics and conduct.”
This code establishes responsibility to work in the public interest, as well as for the collective well-being of the community, institutions and corporations CPAs serve, Herringer said, noting that the face — and especially the size — of these corporations are changing.
Citing the trillion-dollar market value of both Amazon and Apple, which would put them among the largest economies in the world if they were countries, Herringer noted, “It’s only a matter of time before more companies are at the trillion-dollar mark.” With that power comes responsibility.
“Their actions have lasting and significant impacts … As CPAs, we work with these businesses, big and small. We have the unique opportunity to assist these companies in developing sustainable business plans — not just short-term, but the long game into the future.”
However, Herringer added, the speed of business today can often impede this kind of planning.
“Unfortunately, a lot of the world has gone against that direction … Yesterday is old news, last week is history, and last year is practically shrouded in mystery. That’s reflected in the business world, with shorter times to satisfy shareholder demands. A focus on short-term growth is mistaken for business savvy … All this requires you don’t ask certain questions about the sustainability of the business model.”
In contrast, consumers are asking those questions, Herringer explained, citing several studies that found people prefer to support socially responsible companies.
“More than half of people worldwide are willing to pay more for products and services committed to positive social impact,” Herringer said. On the flip-side, she added, over one-third will stop buying from brands they perceive to be unethical, even if there is no substitute available.
Beyond these consumer expectations, companies committed to corporate social responsibility enjoy greater profitability, Herringer explained, and “investors are increasingly demanding more of corporations.” This had led some companies to utilize integrated reporting, a framework that combines financial reporting with reporting on other aspects of a company, such as sustainability, governance, human capital and strategy. Herringer urged accountants to learn more about this model, and teach their clients how to embrace this more holistic framework, noting that the International Auditing and Assurance Standards Board has established a working group to research the topic more fully.
“An increasing number of savvy investors understand a sustainable company understands not just the bottom line, but the social impact,” Herringer said, adding that “there is a strong business case for socially responsible corporations.”
This is evidenced in the number of accounting firms that have added sustainability practices in recent years, Herringer said. Nonetheless, accounting has some work to do in addressing other tenets of social responsibility.
“Just as professionals are awakening to the fact of corporate responsibility, they are awakening to the value of inclusion and diversity. We are far from the ‘Mad Men’ era … by evidence of me speaking here today, as a partner at BDO and president of the New York State Society of CPAs,” Herringer acknowledged. “Of course, even within our own ranks we have a long way to go. Despite the majority of the profession being female, women remain underrepresented in firm leadership.”
Overall, Herringer’s speech lauded the historic integrity of the profession, while calling out areas in need of change.
“The prescription seems quite clear, to expand our understanding of the world beyond profit or loss, and to commit to an inclusive and diverse workforce,” Herringer said. “The profession is mobilizing to meet the challenges of the 21st century, to close the link between value creation and the ability of an entity to sustain operations into the future … As the conscience of the profession, learn more about integrated reporting, discuss [it], and provide opportunities for our clients to understand the impact.”
A wider — and longer — perspective is also required, she explained.
“Champion the ability for integrated reporting, for diversity, inclusion, to challenge the status quo,” Herringer concluded. “We need to understand what’s beyond today, beyond the fiscal quarter … This is the long-term thinking I’m talking about, the kind of long-term thinking we need.”