'Responsible financial leadership' for the coronavirus era

CIMA President Nick Jackson, FCMA, CGMA, is a strong advocate for responsible business. The theme for his presidential year is “responsible financial leadership”, and in this episode he shares how businesses can go beyond shareholder considerations and adopt a sustainable, multi-stakeholder approach to value creation.

What you’ll learn from this episode:

• Jackson’s commitment to public service and performance management.
• Why his “responsible financial leadership” presidential theme is relevant now.
• The value of an ethical approach to business supply chains.
• How COVID-19 has truncated planning horizons.
• Tools to enable finance leaders to prepare for future disruption.

Play the episode below or read the edited transcript:

To comment on this episode or to suggest an idea for another episode, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.

Transcript:

Oliver Rowe: Welcome, Nick.

Nick Jackson: Thank you, Oliver.

Rowe: Many members will know you already. But for those who don’t, perhaps you could describe your CIMA journey so far?

Jackson: Well, I guess it's fair to say that I have quite a wide-ranging, a varied career. I’ve worked in both the public and the private sectors. I’ve had operational financial leadership roles with the likes of Ministry of Justice and Ofsted, which is the schools and colleges regulator in the UK. But also as a management consultant of nearly 15 years, I got to work across a very broad range of industries. However, I’d say there are two constants that I’ve always had as a focus. First is on financial and performance management, to match our theme. And the second allied to that is having a strong sense of public service.

In terms of my CIMA career, well, to be frank as with the majority of our members I had little to do directly with CIMA once I qualified back in 1992. I was busy pursuing my career. However, my path crossed with CIMA’s then-chief executive officer around 2007, when I was invited to lead an advisory group to the UK Treasury on performance management in government. And when in 2009 I subsequently joined the Treasury to help drive improvements in financial management across the civil service and to increase the professionalism of the finance function, I was invited as a co-optee to join CIMA’s Council. I found my time on Council to be particularly stimulating, especially more recently as we’ve faced up to the challenges that are arising from things like the digital revolution, the changing requirements from employers, and the different expectations that new generations have around what it means to be a management accountant. Or, indeed, what it means to study for a professional qualification.

And it’s also been great more recently again to share experiences with my colleagues on Council but increasingly with those drawn from the AICPA and working through the association that we have with our American colleagues. This is really helping to bring a truly global perspective to what we do and to do so collectively with a common sense of purpose around continual improvement for the profession as a whole. And through that to ensure that we retain our focus on the trust that is placed in us by the public at large.

Rowe: Thank you, and the theme for your year as CIMA president is responsible financial leadership. What do you mean by that? And why is it timely for this crisis period?

Jackson: So for me, in shorthand, I would describe this as being about changing the perspective of financial leaders from a shareholder perspective to a broader stakeholder perspective. We are long used to the primary responsibility being shareholder value and protecting that. I don't think that goes away, but I do think that increasingly if we are looking to the long-term sustainability of organisational performance, then we need a broader range of perspectives and we need to embrace those. Because only through that will we have developed the kind of trust that we as a profession need to maintain with our public, with our regulators, with our customers, our suppliers, our employees, et cetera.

Current crisis has really brought some of this to the fore. We are seeing in perfectly profitable businesses that are facing insolvency due to that short-term immediate cash flow hit. And as we’re going through the crisis, we’re now seeing real restrictions on operational capacity in some critical industries as they comply with the requirements of public health in terms of their ability to operate effectively. This has required, I think, other businesses that have been better placed to think more holistically about their relationship with their customers, with their suppliers, and with wider societies. And in that way, we are seeing organisations introduce payment holidays for strategically important customers, flexing payment terms for suppliers, ensuring prompt repayment, credit notes where services can’t be delivered.

And it’s increasingly visible, those who are providing that flexibility and those who aren’t. I use that merely as a demonstration of what I would say is responsible financial leadership. Those who are behaving in that way, who are trying to be flexible, recognising that they are part of a broader ecosystem, and it’s not just about how they themselves operate. Those are the organisations, the leaders of those organisations are the ones who are likely to be more successful going forward.

Rowe: And financial institutions are seeing an accelerating trend towards ESG investment. Within that context, how should businesses perhaps still in survival mode look to the long term?

Jackson: Well, a very timely question as The Sunday Times on the 9th of August was running a supplement on this very subject — dedicated to the trend that we’re seeing in institutional investments around comparing those funds that were following more of this ESG, and the environmental, social, societal, and governance perspectives. Those organisations that invest against those, that kind of ethical stance, were clearly outperforming other funds. I think that that reflects not just good business sense, but I think reflects changes in wider society that is looking for companies that move from words to actually demonstrating how they’re adopting more ethical practices.

An example here would be we’re seeing supply chains, increasingly important that supply chains are able to demonstrate that their sourcing is from sustainable sources, that they’re paying their employees a fair wage, that they’re working to help improve the wellbeing of the communities within which they work. So for me, this is really about — as we’re coming out of COVID, as we're thinking about the new planning horizon which is now no longer a five- to ten-year planning horizon but increasingly a 12- to 18-month horizon, ’cause Covid has truncated those planning timescales — those businesses will benefit much more if they’re factoring into their planning how they will go about demonstrably delivering against the different aspects of the whole ESG agenda.

Rowe: Thank you. The International Integrated Reporting Council, the IIRC, is revising its framework this year. Does integrated reporting and integrated thinking have an increased relevance in this coronavirus era?

Jackson: Absolutely, and it reflects what I mean by taking a stakeholder point of view rather than the traditional shareholder, primarily financially led perspective. Because, obviously, IIRC framework with its different definitions of capital brings together and facilitates a perspective on how different stakeholders define value, whether that’s an employee perspective, suppliers, communities, the environment, et cetera. And I think it’s that breadth of perspective that is increasingly important, and the challenge for financial professionals is how do they move out their traditional perspective to embrace those more nonfinancial, less certain definitions of value.

But I think there is also a gap in standard-setting. And I would welcome IIRC engaging — and I’m sure it is engaging — in this debate around the standards by which organisations can provide assurance to those who are using their information about much of this ESG agenda. There is a multiplicity of reporting frameworks. I think pretty much every major management consultancy and business school seems to have their own version. But until there is some form of standardisation, there is a risk here that the words in companies’ reports, the numbers that are reported, are not actually underpinned by tangible rigour and robustness. So I think it’s a great start, but we need to move further.

Rowe: Thank you. The Global Management Accounting Principles, GMAPs, were launched in 2014, and the Association is currently refreshing them. How can they help management accountants lead businesses through these tough times?

Jackson: Well, I have to say I do remember the launch of the GMAP and the — it’s a little nice whirly gadget which came with it, which provided a useful tool, a relatively easy-to-use tool, diagnostic tool, that helped organisations to better understand where the opportunities lay for them to improve financial and performance management. And what it brought together again was trying to take a broader view than the purely financial. A bit of legacy on me is I’ve long been a fan. I trained at a time when there was a lot of background around Kaplan and Norton’s Balanced Scorecard approach. And a lot of the concepts there I see reflected in the GMAP that were produced back in 2014.

And that’s a framework which is strong in ensuring that organisational performance is forward looking and recognises that success is not purely a factor of finances. That said, the value of the Balanced Scorecard approach became a bit limited because it associated key performance indicators rather than becoming indicators of future performance very much became targets in themselves and therefore were somewhat backward looking. The other thing I’d say about the GMAP tool is it was developed back in 2014 or issued in 2014 on the back of research that was carried out a year or two earlier. So it was developed before there was a real understanding of the impact of the digital age in which we’re now living. As such, I do think it’s time to review and refresh the tool.

Again, not just thinking about that from a digital age point of view but also thinking about that in terms of how it could be used to support the business leaders as they seek to ensure they are ready for future disruption. Whether that’s through crisis such as COVID, which, hopefully, will be once-in-a-lifetime events. But we were prior to COVID seeing new market entrants coming into new sectors of the economy and radically changing the business model. And I think we need to, as finance leaders, we need to ensure our organisations are able either to preempt such disruption or to act to ensure they’re able to respond quickly.

So for me, the new GMAP tool as it goes through its review process has two things it needs to be able to do. One is to help leaders understand the conditions required to enable it to be agile and fleet of foot. And the other, coming back to our earlier conversation, is that it reflects that broader stakeholder perspective as you might see exemplified through things like the ESG framework.

Rowe: Nick, thank you.

Jackson: Thank you.