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Return to: Home > Comments > Editor's letter: All that glisters is not gold

Editor's letter: All that glisters is not gold

In a New York Times article dated 13 September 1970, Milton Friedman, the economist who would later win a Nobel prize, argued that the only social responsibility a corporate executive has is to conduct business in accordance with the owners' desires -generally to "make as much money as possible while conforming to the basic rules of society".

Friedman was described in The Economist's obituary of November 2006 as possibly the most influential economist of the 20th century's second half, since John Maynard Keynes had died in 1946. "Perhaps Mr Friedman became not only a great economist but also an influential one because he had a love of argument," The Economist wrote.

Indeed. Friedman maintained that businessmen who claim that companies should promote social ends, such as avoiding pollution or eliminating discrimination, were "preaching pure and unadulterated socialism", and behaving as "puppets of the intellectual forces that have been undermining the basis of a free society".

At the present time, one of these forces in Friedman's line of fire would be the International Integrated Reporting Council (IIRC) whose chairman, Mervyn King, was in London this month speaking at the annual president's dinner of the Chartered Institute of Management Accountants.

In a nutshell, King's message implied that the desires of business owners (i.e. investors) might have changed over time, and contrary to Friedman's views, they are taking into account companies' environmental, social and governance factors before investing in them.

That's why all that glisters on annual reports might not be gold. Investors are demanding stricter disclosures about a company's story and requiring more non-financial information. Financial metrics on annual reports are just fool's gold if they don't also show the company is able to do business in a sustainable fashion. For that reason, King said in London that corporate reporting, as we know it, is not fit for purpose any longer.

Friedman's favourite economy was Hong Kong, according to The Economist because its success convinced him that "political liberty, though desirable, was not needed for economies to be free".

Meanwhile across Hong Kong's shoulder, Singapore has turned into an economic powerhouse. The city-state has also become an uncontested champion of accounting and Uantchern Loh, chief executive of the Singapore Accountancy Commission is working full-steam to transform the country into Asia's accounting hub by 2020. But there's more: King told The Accountant this month that the IIRC will set up a committee in South-East Asia, most likely led by Singapore.

In December, after a busy year of public consultation, the IIRC will release its long-awaited Integrated Reporting framework. The expectations can't be higher. Many hope the IIRC will come up with a robust reporting framework capable of capturing companies' non-financial value. Not least to prove Friedman wrong.

Carlos Martin Tornero

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