The CFO's dilemma

This blog was written by Gregor Alexander, CFO, SSE and Member of the European Chapter of the A4S CFO Leadership Network

I’ve been a chartered accountant for over 25 years and I’ve been a finance director for 15 years.  In this time I’ve seen three economic recessions, but I think it was the economic crash of 2008 that really undermined trust. The public no longer trusted the competence and the motives of those who held the levers of power and wealth and as a result industries faced increased scrutiny over a range of issues, from corporate tax avoidance to treating their employees fairly.  In situations like these, the business community can sometimes revert to defensiveness.  But the truth is – industry needs to work a whole lot harder to earn the right to be profitable.

The CFO’s dilemma

I believe CFOs now face a dilemma. This notion resides in the idea that there is a disputable choice for finance leaders, that there is always a trade-off between making money in the short term or being a force for good in the long term.   Of course that assumes that it’s not possible to earn profit and also contribute to society.  My argument is that they should be one and the same thing.  Simply put: we no longer have the public consent to do one, unless we do the other.   

The CFOs dilemma, in my mind, is therefore not so much a binary choice:  between the soft things that support society, as opposed to the hard things like, shareholder return. The dilemma is not the choice between those things, the dilemma is the choice of the actions you take to ensure you can achieve both.

In this regard, the role of the CFO is changing and finance professionals need to appreciate not only financial and manufactured capital, but need to understand, respect and account for social, human and natural capitals too because this is what society, not just shareholders, are asking CFOs about, whether that is at AGMs or in 140 characters on Twitter.

I would argue that the CFO is at the centre of a change that is happening within business.  Corporate responsibility is no longer the philanthropic side-line that is a million miles away from the core business, it is now an essential part of the CFO’s toolkit.  Sustainability and corporate responsibility are corner stones of successful businesses.  Finance teams are providing leadership within their organizations to ensure decision making fully encompasses economic, social and environmental impacts. Companies that fail to ensure this will risk their overall business model and ultimately their right to make an appropriate profit. 

Measuring impact

When a company begins its journey to understand the complexities and sophistication it requires to be truly sustainable, we all tend to think about our impacts; the impacts that our operations have on society, the environment and the economy.

As accountants, we were trained to be objective. This means we let the numbers do the talking and conduct ourselves to the highest levels of professional conduct, taking pride in that professionalism. 

At SSE, we’ve started to calculate and publish our economic impacts on a regular basis.  We’ve always known that as a large energy company in the UK and Ireland – investing around £1.7bn a year in infrastructure – that we have a positive impact on jobs and wealth.  But we had never asked "how much?"  So, the starting point was to find out exactly that.  And of course the numbers were big.  Over £50bn of GDP supported in the last six years, and well over 100,000 jobs a year.   

But we also wanted to know how that macro-economic impact was supporting local communities and economies, so we’ve started to undertake in-house impact studies, publishing them, and importantly, learning from them so we discover how to enhance those impacts for local people.  To date we have undertaken over 10 projects across the SSE Group to develop our knowledge and skills of impact measurement, creating a valuation for things like visual amenity, cultural heritage, as well as the more conventional things like jobs and GDP. We have also published a report, 'Valuable people', which quantifies the economic value of the people we employ to the company and to society. 

I’ve also been inspired by the Accounting for Sustainability CFO Leadership Network, alongside dozens of other like-minded FDs and CFOs under the leadership of His Royal Highness The Prince of Wales.  Within the Network, we are producing guidance on areas such as capex and measuring social and human capital which helps finance teams, like mine, improve our future decision making. Our approach helps us to understand our true value and how to enhance that value. This is partly for company gain, but also for individuals' benefit and societies' gain too. 

Despite all of this action to broaden quantitative measures, decision making still requires subjective judgement.  It is understood that awareness and knowledge that rules, regulations and laws, while important, are not sufficient to prevent wrong doing.  Subjective value-driven judgement is an important determinant of whether somebody ‘does the right thing’.  Therefore, at SSE we believe that these subjective judgements are best guided by a clear set of values and a healthy corporate culture, ensuring decisions are ethical, responsible and balanced.