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In Conversation With Ken McPhail

How has the area of accounting ethics changed during your career?

The complexities of organisations and the things they do for us have changed quite dramatically over the last 20 years. Businesses such as Apple are becoming huge organisations in their own right, bigger than many governments. At the same time the very function of companies has changed. They don’t just produce technologies and manufacture products, they also do things that used to be the sphere of governments such as running prisons, hospitals, or immigration and detention centres.

What do all these changes mean for the way we think about business responsibility?

It used to be quite clear in that the key responsibility of companies was to shareholders. But now we have a much broader set of activities that corporations are involved in, and a much broader range of people who are impacted by their activities. Those people impacted can therefore legitimately ask whether these corporations should be responsible for the environment, or for the impact of technologies on our health and well-being, or for their impact on international politics.

What is the impact on companies themselves?

Corporations today are made up of a whole variety of different people that can bring different expertise to the business. For instance people who used to work in NGOs now find themselves working in big corporations because companies need different talents, different skill-sets. Corporations are also partnering with different kinds of institutions to address these challenges, such as Unilever partnering with Oxfam. However a lot of companies are still in denial in terms of the magnitude of this issue.

In addition to the changing skills sets and human resources required to address these challenges, the evolving set of business responsibilities is also impacting business missions and business models. For instance Novartis states that a key part of its business mission is to contribute towards the right to health. BMW, on the other hand, are drawing on notions of the circular economy to develop a business model based on zero waste. The business logic is that remanufacturing components, rather than creating them from new, can result in huge cost savings.

To what extent are companies meeting these new responsibilities?

As with most things in business there are leaders and laggards. There are lots of new indexes that attempt to assess the extent to which companies are meeting these new responsibilities. Some of these indexes have been around for a while, like the FTSE4Good and Dow Jones Sustainability Index. One of the things that is interesting about these indexes is that they are seen as proxy measures for good governance and risk management. However one of the areas where I think we need more work is in relation to the disclosure of credible information and how we establish the extent to which companies are meeting these new responsibilities.

What does this mean for business education?

The whole area around understanding business, and understanding the accountability around those businesses, is going to become more significant. At a global level we are still trying to think through how corporations operate across different states, countries and nationalities. We need to think about how we govern those organisations and how we want them to be responsible.

We used to have a notion that a company would be based in a particular country and that the government of that country would be the key mechanism for developing regulation for corporations so that everyone’s interests were aligned. But now we have global companies with offices in dozens of countries and the question becomes ‘how do we regulate that?’ Do we leave it to the market to regulate or do we try and think of new ways of using the market? It is about equipping the CEOs of the future with the skills they need to engage with these dilemmas.

Isn’t this something that the UN is now working very closely on?

Yes, we are seeing the emergence of new vehicles and organisations that are trying to regulate companies at a global level, and the UN is now very interested in the role of corporations globally.

In recent years the UN has shifted its focus away from engaging with governments on human rights issues to engaging with businesses. As former Secretary General Kofi Annan said, “the business of the UN is now business”. So non-state bodies such as the OECD, the World Bank and the International Accounting Standards Board (IASB) are now playing a key role. The key question is how we then get representation at these different international bodies. How, for instance, do you manage and negotiate the interests of the UK, America or China so that we have a system of regulation that benefits global society as a whole?

How does this influence your own teaching?

It is about getting students to think about these issues and challenging them to understand the reality of putting together a business plan where, say, carbon emissions are just as important as financing. It is about getting students to understand the challenges as well as the tremendous opportunities that these new developments represent for businesses, as well as society more broadly. As a business school we need to be producing leaders who are able to address the challenges of how you balance environmental, business and social requirements. I think the neatest summary of the issues I’ve come across is by John Elkington, who noted that we need a triple bottom line of profit, people and planet.

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