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A clear strategy is key to embracing stakeholder capitalism, experts say

CPAs are the drivers behind strategy, risk assessment and operational decision-making as organizations establish their purpose beyond profit

Group of business people having a meeting in an officeHow stakeholders are valued is key in the long-term; and it’s where CPAs play a valuable role (Getty Images/Cecilie_Arcurs)

Stakeholder capitalism may not be new—the theory was introduced back in the 1950s—but it is a trend gaining momentum, particularly in the face of COVID-19.   

The corporate world appears to be moving away from profit-driven purpose with influential bodies including the Business Roundtable—made up of 181 of CEOs from America’s most powerful companies—and the World Economic Forum, shifting focus from shareholders to stakeholders to keep business thriving.

How stakeholders are valued is key; and it’s where CPAs play a valuable role, says Gord Beal, CPA Canada’s vice-president, research, guidance and support. This requires an outlook beyond the financials when measuring a company’s performance and considering intangibles such as people, culture and trust. It is a key aspect of CPA Canada’s Foresight: Reimagining the Profession initiative, which encourages identifying, measuring and reporting these intangible factors as a means of making decisions and creating value.

“The corporation needs to be focused on all stakeholders in order to drive future performance,” says Beal. “It’s a shift from hindsight to foresight, looking at how organizations can drive value in a different sort of way.”

But what does stakeholder capitalism look like in practice and how can corporations turn their commitments into action?  

It comes down to having a clear strategy, experts say. Here are three tips for creating one. 

1. TAKE IT FROM THE TOP DOWN

Business leaders play a prominent role in building and maintaining the trust necessary to get people on board, while ensuring that actions lead to results.   

“You need to have trust for it to work, and the process itself is going to build trust,” says Beal. “This comes through the actions that corporations and leaders take. When they say they are going to do something, they need to follow through.”

It’s also where accountability and transparency come in, and where CPAs are a necessity to drive strategy, risk assessment and operational decision-making, adds Beal. 

“There’s an opportunity for accountants to play a substantial role in making sure that the organization is meeting those accountabilities, not only in terms of its financial reporting, but in how it drives its strategy and broader performance metrics,” he says. “This is increasingly going to be core to who we are as a profession.”

2.  FIND PERSPECTIVE 

Organizations pursuing stakeholder capitalism are doing so with both a long- and short-term perspective, says Allan Donald, partner, audit and assurance, with Deloitte.

Sustainability, he says, is not about choosing an initiative, such as the environment or workplace diversity and inclusion, and running with it. It is figuring out how the entire organization will sustain itself in years to come. This requires looking to the future through a wider lens to remain relevant and engaged with all stakeholders impacted. 

“More and more large institutions have very long-term investment horizons … the whole thought is, if you aren’t considering all your key stakeholders, how can your business survive long-term?” he says “If you fail one of those groups, you’ve broken the link in the chain.” 

From a short-term perspective, Donald adds, the impact of a pandemic and social movements illuminates the state of organizations, their strengths and weaknesses, and the support mechanisms they do, or don’t, have in place for those they represent. 

“Organizations are [presently] under stress, and that’s when behaviours become magnified and are put under a microscope. People are judging them based on how they behave, particularly relative to what they’ve said,” he says.

“Businesses, in the short-term, are seeing that they are part of an ecosystem and unless they help that ecosystem survive, it’s going to be very challenging for them.”

3. ASSESS WHO YOU ANSWER TO

Understanding who your stakeholders are requires analysis, says Donald. 

A materiality assessment, he explains, helps an organization determine what groups they have a responsibility to, their weight of importance, their needs and requirements, and how to meet them. 

During this assessment, it’s critical to engage with stakeholders to hear first-hand what’s important to them, rather than assuming how best to serve them. This can be done through surveys or direct consultation, dependent on the nature of the group. 

“When planning, discussions take place with those groups to find out what really matters,” he says, and processes that create value are established from there. “Presumably, the best value [an organization] can create are processes that align with what matters to these groups.” 

Determining and prioritizing how an organization responds to its stakeholders also requires risk analysis to identify gaps and areas for improvement, says Beal. 

“If you look at it more broadly on societal and environmental impact, there are risks coming at organizations around how they operate, where they operate, the nature of products that they sell, etc.,” he says. “It becomes integral to who they are as a business and how they drive organizational strategy and risk management.”

It’s a systemic change that’s happening, Beal adds, with these broader questions being asked more frequently, even by shareholders themselves. “It may not be tied to immediate financial performance, but it’s tied to the ability of that organization to maintain itself and sustain itself in the longer term.” 

DOING THE RIGHT THING

According to Deloitte’s third annual Readiness Report, the Fourth Industrial Revolution: at the intersection of readiness and responsibility, which was released in January, nearly six out of 10 executives said increasing their businesses’ positive impact on society was a top-five desired outcome for Industry 4.0—up from 35 per cent two years ago—while external stakeholders and employee pressure were top reasons for doing so. 

Though skepticism exists on whether stakeholder capitalism will take root or an official framework will be developed, Donald believes that an organization not reacting to this trend risks being left in the dust. A corporation’s stakeholders have a louder, united voice through social media, etc., he says, speaking up for what they believe should be changed, valued and pursued both in business and society as a whole. 

“To say you ignore them is at your peril because they do have a voice,” says Donald. “If you haven’t reached out to understand what’s important or valuable to them and aren’t yet being thoughtful about that, you’re at risk of having major events cause severe issues for your organization.”

SUSTAINABLE ACCOUNTING

Look to CPA Canada’s Foresight: Reimagining the Profession initiative for insights into how the accounting profession is embracing measuring value beyond financials, establishing new models for data governance, developing skills and competencies and protecting integrity, trust and ethics.   

Also, find out how this Canadian mining giant, is putting sustainability into action with its commitment to environmental, social and governance issues.