Business models must benefit society as well as shareholders : ACCA

Leading global accountancy body questions whether the traditional limited liability company is right for the future

ACCA (the Association of Chartered Certified Accountants) argues that it’s time for an alternative to the traditional limited liability company.

An ACCA report argues that the legal form of the limited company leads to a damaging single focus on financial results at the cost of the environment and communities and societies who expect businesses to serve them.

Building future business investigates switching from current business models – which prioritise shareholders – to models that measure financial results as part of an interconnected web of factors.

Md. Sajid Khan, Director – India at ACCA said: ‘Businesses today are being judged not just by profits but by the value they create for communities, employees, and the environment. The traditional limited company model often prioritizes financial returns over these wider responsibilities. ACCA’s ‘Building Future Business’ report highlights that adopting approaches like B Corps and integrated reporting can help companies align growth with societal impact, ensuring success is shared by all stakeholders.’

Jason Piper, head of tax and business law, ACCA, said: ‘The conflict between the financial imperative and the concrete impacts of business on society and the environment are too great to ignore. Economic activity is supposed to benefit society, but in many ways we’ve ended up with an economic model that seems to do the opposite.

‘The company form we know so well did a great job in protecting providers of capital when that was most needed. But now those financial safeguards are distorting business and economic behaviour. We do have potential answers in the form of things like B Corps and integrated reporting frameworks.’

To build better business models the report says enterprises need to answer key considerations that should shape their future. These are:

·         Who are the key stakeholders?

·         What is ‘value’ to them?

·         What are the expected flows of ‘value’ from economic activity to each group of stakeholders?

·         How do value flows align with the legal form of the business?

·         What guidance and support exists in the regulatory and legislative ecosystem? Are there gaps?

·         What are the ethical considerations in filling those gaps?

·         What non-regulatory voices exist to guide potential legal form?

·         How will record keeping, communication and reporting need to operate to fit in with the legal form?

·         What are the qualitative characteristics needed to ensure trust in the reporting, form etc?

·         What other safeguards are needed to protect the interests of the stakeholders?

Business models in many areas are changing from reliance on labour and goods to a digital economy, with activities focused on energy use and a relatively small number of highly specialised and capital-intensive machines.

Piper said: ‘We have ended up in a place where businesses doing well can undermine the communities they are in. Building future business looks at what’s driven this distortion of the decision-making process, and how we can try to redress the balance between business and society.

Read Building future business.