By Margaret Michaels
The 1970s may best be remembered for bell bottoms, disco, and feathered hair, but it was also an important decade for economics, and by extension, management accounting. In 1972, Noble Laureate in Economics Milton Friedman, penned his international bestseller, Capitalism and Freedom, emphasizing the importance of free markets. He wrote:
“There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits.”
But during that same period, others held that corporations were responsible for more than just turning a profit. IMA member Manuel Tipgo, Bluegrass Chapter president and assistant professor at the University of Kentucky, wrote an article, “Reporting Corporate Performance in the Social Sphere,” making the case for corporate social responsibility and earning himself a 1975 IMA Lybrand Silver Medal.
Tipgo, like Friedman, believed “performance is the key to success” and that profits could “bring the good life to society.” But he also noted that economic progress came with some highly undesirable side effects:
Corporations that used society’s resources free of charge, Tipgo argued, “should take responsibility for the unwanted effects of their actions.” And management accountants had a role to play in helping measure their performance in areas like pollution abatement, environmental conservation, and equal opportunity for all.
Today we see the influence of voices like Tipgo’s in sustainability performance data – often referred to as “nonfinancial,” “balanced scorecard,” “performance dashboard,” “environmental, social, and governance ESG),” and/or “integrated reporting” data. IMA continues to be at the forefront of research in this area.
Because sustainability measures are often not tangible, they can be difficult to quantify. There are tools helping to change that, including one IMA is exploring: the COSO (Committee of Sponsoring Organizations of the Treadway Commission) Internal Control—Integrated Framework for sustainability performance data. Examples of what constitutes sustainability measures as developed by the Sustainability Accounting Standards Board (SASB) are:
Companies like JetBlue and NRG Energy have chosen to communicate with their investors about SASB measures, and all signs point to increasingly more companies choosing to do the same. Forbes reports that investor interest in ESG (environmental, social, governmental) factors has “gone mainstream,” citing an Oxford University study that finds more than 80% of investors use this information to make investment decisions.
Why the shift? It’s in the self-interest of organizations to factor in these measures as a risk mitigation and performance enhancement tool. Some industries have recognized this fact quicker than others. For example, consumer demand for responsible sourcing and a transparent food supply chain has made ESG a cornerstone principle in the food and beverage industries.
It’s also an important element of brand engagement. Forbes recently partnered with JUST CAPITAL to create a list of companies “doing right by America.” They asked 81,000 Americans about what they most want to see from the nation’s biggest businesses and then ranked publicly traded companies by their performance in these areas. What did Americans say they wanted to see?
Clearly, nonfinancial measures of performance are not just “feel good” tools, but real key performance indicators that a range of stakeholders (customers, employees, owners, the community) take very seriously.
Writing this piece makes me really grateful for IMA member Manuel Tipgo and his challenge (way back in the 1970s) to think differently about business for the social good.
Currently serves as IMA’s Manager of Brand Content and Storytelling where she works on IMA’s blog, executive-level presentations, and CMA stories. Margaret has over a decade of experience creating and executing marketing communications in the financial services and non-profit sectors. She recently headed up communications for the City University of New York’s Institute for State and Local Governance (ISLG) where she worked on public affairs for the Equality Indicators, a Rockefeller-funded performance measurement tool for cities.
She holds a Bachelor of Arts in English from the University of Delaware and a Masters in Information Science from Pratt Institute.