Evolution: Industrial -> Information -> Purpose Economy?
Aaron Hurst, the father of the Purpose Economy movement, argues that after the industrial and information economy, the time is now to put people first. This holiday season, it warms my heart that regardless of religious background Aaron can applaud Pope Francis as they both point in the same direction. It looks like another reason the world will be better in 2030.
We are yet to see if the new incarnation of economic evolution will be called "purpose", simply "next", or another term. But a shape of the future economy is more important than the name. Will it put people first? Or it will be based on the worship of "money and the dictatorship of an impersonal economy lacking a truly human purpose." In other words, it will put SOME people first.
Many signs point towards the probability of both scenarios. "Impatient Optimists" like Melinda and Bill Gates, are followed by others who decide to use their fortunes for good. Most recently Mark Zuckerberg and George Lucas. On the other end, we have corporate leaders that value money above life, and to drive profit can raise a price of a life-saving drug from $13.50 by over 5500%.
Storytelling: Purpose or Bottom-Line Economy
In my adopted habitat of the accountancy profession, storytelling tends to have at best ambiguous connotations. Perhaps it rings too close to "creative accounting" - a phrase cloaked in a negative aura especially during the big scandals early in this century. But I tend to agree with Annette Simmons that whoever tells the best story wins. And in this era of exponential growth of available information, meaningful storytelling may well be an essential ingredient that will tilt the scales.
Corporate Reporting 2.0: Integrated Reporting
As drivers of market value of companies shifted, the frameworks for corporate reporting lag behind. Companies continue to communicate with their stakeholders focusing mostly on the tangible and financial aspects of the business performance. Interestingly, "2010 research by Ocean Tomo, found that net assets S&P 500 companies represented only around 19% of market capitalization in 2009, compared to 90% in the 1970s. In other words, intellectual capital and other intangible assets not captured on the balance sheet now drive market value" (source: Value to Board).
Why IR>? More than Financials. IRRC after Ocean Tomo, LLC
Integrated Reporting or IR> was created to enable companies to tell a better story in the new brave world of information overload. Modern corporate reports can go on forever. Required disclosures, additional reports on sustainability, CSR, etc. add more layers of information for investors to dig through. And all this when we learned to communicate effectively using 140 characters on Twitter...
Business as usual is no longer an option. New models are challenging conventional wisdom and established companies must adapt to the ‘new normal’ of innovation and disruption. The consumer has never been more powerful and technology will continue to accelerate this trend. Amid this change, many companies are redefining the parameters of their own success, and with mainstream providers of financial capital, they are achieving a new balance between profit today and sustainable performance over the long-term. Integrated Reporting is the tool businesses need to make this transition, stay ahead of the competition and remain connected to customers, employees and other stakeholders on whom their future success depends .
I'm proud to be part of both Purpose Economy and IR> movements. Both fuel the hope that the future economy will put people first, focusing on Purpose & Creativity (P) more than Compliance & Bottom-Line (B). Naturally, this is not a 0/1 proposition. For a business to be successful, both P and B need to be addressed. It would be an interesting to research how the relationship between P and B in a business model impacts the Longterm Shareholder Value (L).
Would L = P/B prove to be the Millenial business success formula?
Let's hope some brave Ph.D. candidate will tackle the challenge. In the meantime, I hope that Purpose Economy and IR> would explore the possibility of leading a coalition for better 2030 together.
Go Boldly Where No Company Has Gone Before
First, the good news. Integrated Reporting is not a final frontier anymore. Others have been there before. And they liked it. The movement is gaining momentum, and the IIRC proclaimed 2014-2017 as the Breakthrough Phase from creation and testing to adoption around the world.
The less good news is that a move towards IR> will not be cheap. In their 2014 working paper, Integrated and Corporate Reporting: A Functional Perspective, Robert G. Eccles and George Serafeim of Harward Business School, discuss information & transformation as the two primary functions of corporate reporting. They argue why isolating financial + sustainability reporting is inefficient in performing these two functions. And they explore integrated reporting as an attempt to accomplish both. In a related paper, Serafeim finds that firms practicing more IR have a more long-term dedicated investor base with fewer transient investors. He also notes that "IR is a costly activity and we are still not able to establish whether the benefits exceed the costs". But as we move towards the Purpose Economy, a pure cost-benefit analysis may be less important than doing the right thing.