A new capitalism, with the same old spin…

A recent article in CPA Canada’s Pivot magazine, written by Gord Beal, posits that “a new capitalism requires a new accounting.”

Here’s an extract:

  • Investors and business leaders are joining others who are challenging an unsustainable status quo. Although the degree and speed to which capitalism will evolve remains to be seen, dramatic shifts in our ideas about acceptable business behaviour are taking form. Existential issues such as climate change, the global pandemic, crisis in the world economy—and the stark inequalities these have exposed—have brought us to a tipping point. Change is inevitable, not simply because it is the right thing to do, but because it may be necessary for human survival. 
  • The World Economic Forum (WEF) has long been a champion of the principles of a new capitalism. The WEF has done extensive work to define this as the capacity of the private sector to generate long-term value for all stakeholders, including share­holders, members of society and our planet. We have already seen major corporate leaders, in partnership with the WEF, speak up and commit to a rebalancing of corporate purpose around this concept. “It’s time for a new capitalism—a more fair, equal and sustainable capitalism,” Salesforce CEO Marc Benioff wrote in a New York Times column, “where businesses . . . don’t just take from society but truly give back and have a positive impact.”
  • Capitalism, as it exists today, has driven significant advancements in our world, but it is also a root cause of global inequity, giving grossly inadequate attention to social and environmental issues. The inherent competitive nature of the system, which prioritizes profitability and shareholder value, has failed to unfold in a sustainable manner.
  • Today, a new expectation for corporate performance is emerging. As the world shifts its attention to this broader definition of capitalism, the accounting profession has an opportunity to respond….

Not for the first time though in such pieces, the leap from discussing the perilous prospects of human survival to focusing on current issues in corporate performance and implications for the accounting profession isn’t an altogether graceful one (change may be inevitable, but not necessarily of a kind that’s rational and beneficial). Certainly we can observe the momentum toward global sustainability standards. But as Erkki Liikanen, Chair of the IFRS Foundation Trustees, pointed out in a recent speech, these are more about pricing risk than about necessarily promoting virtue:

  • Governments are required to establish clear policy frameworks. Investors price investment capital based on how those policies will impact companies in the long term. This in turn provides companies with an incentive to embrace sustainable business models. The efficiency of this supply chain is dependent on high-quality, globally comparable information on which investors can assess sustainability risks and make informed decisions.

Implicit in this is a key point – that the informed decisions made by investors may involve continued investing, at least for the short term, in non-sustainable business models, as long as those opportunities are appropriately priced. Indeed, the desire for short term return may sometimes be better satisfied by those kinds of investments. That is, however virtuous the primary motivations underlying sustainability standards may be, it’s far from evident that they will necessarily succeed in promoting “better” widespread behaviour. For an overused (not least by me) but ever-relevant reference point, consider the impact of executive compensation disclosure, sold on the premise that “sunlight is the best disinfectant,” but in practice mere onlookers to (if not facilitators of) a wage spiral that evades all discipline, morality and rationality.

It’s not at all clear to me that “a new expectation for corporate performance” is indeed emerging, or at least not as much as a new expectation for corporate spin. Recall again (if you can stand to) our previous articles on America’s Business Roundtable’s Statement on the Purpose of a Corporation. The document – with 200 “who’s who”-level signatories including the heads of Apple, Amazon and JP Morgan Chase – specifically rejected the previous bedrock principle that corporations exist principally to serve their shareholders, committing to such matters as investing in employees, supporting communities, and delivering value for all stakeholders. But  The Atlantic subsequently reported the following:

  • As COVID-19 spread in March and April, did signers give less of their capital to shareholders (via dividends and stock buybacks)? No. On average, signers actually paid out 20 percent more of their capital than similar companies that did not sign the statement. Then, as the coronavirus swept the country, did they lay off fewer workers? On the contrary, in the first four weeks of the crisis, (a researcher) found, signers were almost 20 percent more prone to announce layoffs or furloughs. Signers were less likely to donate to relief efforts, less likely to offer customer discounts, and less likely to shift production to pandemic-related goods…

The article speculated on a largely psychological explanation, citing the concept of “moral self-licensing”: “If people are allowed to make a token gesture of moral behavior—or simply imagine they’ve done something good—they then feel freer to do something morally dubious, because they’ve reassured themselves that they’re on the side of the angels.” Whether or not that’s the case, it seems to me that the ability of profit-generating entities to flourish in the long-term essentially demands that they work against the common good in one way or another, however eloquently and colourfully they claim (or superficially demonstrate) otherwise. If a “new capitalism” exists, its main characteristic may be relentless disingenuousness…

The opinions expressed are solely those of the author

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