• Register
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
carlos.tornero@uk.timetric.com

Top Content

    ARGA team, assemble!

    The new top team has been named that will see in root-and-branch reform at the Financial Reporting Council (FRC) as it transforms into the Audit, Reporting and Governance Authority (ARGA). Will the new duo be as dynamic as some are hoping? Robin Amlôt reports.

    read more

    FASB: a quest for simpler standards

    FASB chair Russell Golden addressed the IMA 2019 Annual Conference and Expo at the Sheraton San Diego Hotel and Marina, California, on 18 June. IMA immediate former chair-emeritus Alex Eng acted as moderator. Joe Pickard reports.

    read more

    The future of audit, and how to get there

    Two recent reports peer into the future of the audit profession. One analyses what an audit should offer, while the other looks at how the audit process will be carried out. Robin Amlôt takes a closer look at both.

    read more

    EFAA elects new president, focuses on digital future

    EFAA’s new president, Salvador Marin, outlined his key priorities for the next two years at the organisation’s 2019 annual general meeting, while outgoing president Bodo Richardt offered advice. Robin Amlôt reports.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.