In terms of how this impacts the finance function, Jeff Thomson, president and CEO at the Institute of Management Accountants (IMA), wrote that “automation has moved the finance function closer to business strategy and decision-making, as basic ‘number-crunching’ is left to software. This has, in turn, altered the CFO’s role. Another key development has been the emergence of ‘stakeholder capitalism.’”
The article asserts that the “traditional role of the guardian of an entity’s finances has been superseded by a new reality: one where the CFO has a broader function across the piece, where performance is measured against the three Ps of people, profit, and purpose that are increasingly used to evaluate success.”
Some critics may have dismissed stakeholder capitalism as large organizations merely paying lip service to the changing needs and wants of employees, partners, and consumers. However, there is real evidence that companies are adopting new practices and in turn redrawing the boundaries of trust and integrity. The real challenge comes in creating the metrics that can succinctly communicate the benefits of stakeholder capitalism to the broader business. One such initiative is the World Economic Forum (WEF) Measuring Stakeholder Capitalism index, created to help CFOs explain in a consistent way how their investments in people, the planet, wider social prosperity, and governance can create value for their stakeholders.
A collaborative project involved EY teams and other major accountancy firms, non-governmental organizations (NGOs), and investors to develop and publish universal environmental, social, and governance (ESG) metrics and disclosures that companies can report on regardless of their industry or region. These metrics and disclosures align with existing standards, enabling companies to report nonfinancial disclosures with common definitions and meaning. According to the study, more than 120 members of the WEF’s International Business Council are expected to adopt these metrics, paving the way for wider adoption.
The report states, “Long-term value is likely to move [stakeholder capitalism] from aspiration to reality particularly if CFOs take the lead in embedding it into corporate reporting, organization culture, and strategic decision-making.”
Critical to Trust: Technology and Skills Development
The evolution of technology and pace of change brought about by cloud, mobile, and digital technologies are transforming the way finance operates. COVID-19 and the rise of stakeholder capitalism—mixed with an uncertain political and economic landscape—have intensified the issue of trust on two levels.
First, CFOs and their cohorts need technology they can trust; for example, having confidence in the data that’s at their disposal. This means knowing that their technology partners can deliver when it comes to their architectural, operational, and organizational security, including privacy and compliance requirements.
Second, the year 2020 also saw the continuation of consumers and businesses disassociating themselves with organizations that failed to meet the required standard when it came to the execution of their values. Stakeholder capitalism has brought increased expectations of what businesses should deliver at a time when consumer trust is at an all-time low. Customers make technology purchasing decisions based on a broad range of factors, including environmental commitment; how partners treat their employees, customers, and community; and their long-term commitment to serving customer needs. It is no longer simply a case of speeds and feeds.