<img src="https://certify.alexametrics.com/atrk.gif?account=YiINr1zDGU20kU" style="display:none" height="1" width="1" alt="">

AcctTwo Blog

ESG Issues Bring Disruption and Need for Strategic Corporate Finance

strategic corporate finance

A little over a year and a half ago, we wrote about the new statement of corporate purpose published by the Business Roundtable (BRT) which drew praise, criticism, and skepticism. The new statement was groundbreaking and it's worth reading. The BRT had in the past focused on “shareholder primacy,” following the lead of Milton Friedman in the 1970’s. In 1997, the BRT stated that, "the paramount duty of management and of boards of directors is to the corporation's stockholders," and that "the interests of other stakeholders are relevant as a derivative of the duty to stockholders."

However, in the new statement of purpose, published in August of 2019, the BRT doesn't mention shareholders until the last bullet of their statement, and seems to give more urgent attention to customers, employees, ethics, communities, and the environment as part of strategic corporate finance.

The new statement stirred up a firm amount of controversy. We at AcctTwo were especially interested in how corporations planned to measure their success against the new stated goals of:

  • Delivering value to our customers
  • Investing in our employees
  • Dealing fairly and ethically with our suppliers
  • Supporting the communities in which we work

Measuring the final bullet, “Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate,” was a little more obvious to us.

strategic CFO

As a provider of finance and accounting services and technologies that integrate via API in the cloud, incorporate both financial and operational data, and provide a single source of truth in real-time, we at AcctTwo saw a huge opportunity in this new statement of purpose. Our large nonprofit customer base has made huge gains in measuring the outputs and outcomes of their missions, something that can’t be measured in profits. For-profit corporations could learn a lot from the nonprofit sector if they want to understand how to measure their alignment with the new BRT statement of purpose. 

A recent article in Deloitte’s CFO Journal, part of the Wall Street Journal’s business coverage, has renewed our interest in writing on this topic and, not surprisingly, the pandemic itself plays a role. The article is a Q&A-style interview of Tom Conforti, retired CFO of Wyndham Destinations (formerly Wyndham Worldwide) by Kristen Sullivan, a partner with Deloitte & Touche LLP Audit & Assurance. In the interview, Conforti explains how environmental, social, and governance (ESG) issues are being pushed to the top of CFO’s agendas because of the pandemic, concerns about social justice, and severe weather incidents brought on by climate change.

For some background, the term ESG was first coined in 2005 in a landmark study entitled “Who Cares Wins.” The report developed guidelines and recommendations on how to better integrate ESG issues in asset management, securities brokerage services, and associated research functions. The focus of the report is a series of recommendations targeting different financial sector actors, which, taken together, seek to address the central issue of integrating ESG value drivers into financial market research, analysis, and investment.

“Studies have shown that companies rating poorly on ESG are more likely to risk earnings pressure, bankruptcies, scandals harming shareholder value, and reduced capital access.”

But it’s not all about investment. According to Conforti, “Studies have shown that companies rating poorly on ESG are more likely to risk earnings pressure, bankruptcies, scandals harming shareholder value, and reduced capital access.” Much of what brought Conforti to his current perspective, in fact, is based on his focus on risk assessment as CFO of Wyndham Worldwide. The risks of climate change, and regulatory initiatives intended to counteract climate change, have huge consequences for business models and supply chains as well as employee and community health. The same can be said about the risks exposed by the COVID-19 pandemic.

This new emphasis on environmental issues, social justice, corporate governance and ethics, employee well-being, and responsibility to community (and the risks of not managing these issues properly) is fascinating to us. In our service to CFOs, the key questions we look to answer are around how to mitigate these risks and, perhaps more importantly, how to measure whether these risks are being well mitigated. And all this doesn’t even start to address the enormous opportunity for companies to have a positive impact on society and the world around them.

A starting point, we believe, is a foundation built around cloud technology that allows both financial and operational information to be accessed in real-time, where data can be explored and visualized interactively, where unstructured data can increasingly be incorporated and analyzed, and where we can actually measure the risks and opportunities associated with these new concepts of corporate responsibility and purpose.

Stay tuned to this blog as we continue to explore this topic.

I’d love for you to go a bit deeper into these insights by reading our eBook, How Can You Transform Finance & Accounting into a Strategic Business Asset? I see it as the culmination of everything we’ve learned from as a strategic finance business partner supporting our incredible customers for a decade (most of whom are still with us) and a guide for finance and accounting leaders at all organizations to establish what they should expect from their service providers. 

Topics: General strategic CFO