The rise of the chief value officer

Speaking at the 2020 Finance Indaba Network, Professor Mervyn King advocated for a title change for CFOs.

Leading corporate governance expert Professor Mervyn King motivated for a “rebranding” of the CFO into the chief value offier (CVO) at an Impact Session at the 2020 Finance Indaba Network.

Arguing that in addition to managing and understanding the financial position of a company, it is the CFO who is responsible for creating value in the business, he pointed out that, “Successful businesses have moved away from creating profits for shareholders to focusing on long-term value creation. In the C-suite, it is the CFO who drives this.”

The CVO role must ensure that all relevant aspects of value creation and destruction are accounted for and communicated to boards, management, and external stakeholders,” said Prof King. “Key to this is advising companies on public interest issues and sustainability.

“The CVO also has to report all assets available to the company and this includes natural assets. They need to report to the board on the financials and the non-financial aspects, including the company’s impact on the economy, society and environment.”

Prof King said he believes that the time is right for one set of integrated reporting standards, as the many competing versions create ‘confusion and clutter’ for accountants. This past September, the five global organisations that specialise in sustainability and integrated reporting standards announced that they would be creating a comprehensive approach to corporate reporting. They acknowledged that the complexity around sustainability disclosure has made it difficult to develop a comprehensive solution for corporate reporting.

An extinction accounting framework
While climate change has been picked up as a major concern for institutional investors, many also believe that extinction risk should be on investors and companies’ radars. By 2045 the planet is expected to be home to some 9.3 billion people. Habitat destruction and pollution are resulting in what scientists call the sixth mass extinction on plant earth. From insects to mammals, trees to flowers, species are going extinct at an unprecedented rate.

Professor Jill Atkins, who holds a chair in financial management at Sheffield University Management School, said companies needed to take a proactive approach to preserving biodiversity. “The corporate world and society rely entirely on the healthy functioning of the ecosystem surrounding us. Species extinction presents a financial business risk for companies and investors. We need urgent action to preserve biodiversity and prevent extinction,” said Prof Atkins.

Today, smart organisations are shifting their sustainability responsibilities towards the finance function. In the future this will include reporting on measures that the company is undertaking to protect biodiversity in their business operations.

“The extinction accounting framework can be incorporated neatly into any integrated report and should assist organisations in demonstrating how they are treating ‘natural capital’ and how they are preventing extinctions where they operate. Extinction accounting represents a mechanism of ecological governance which can, and hopefully will, prevent the extinction of species worldwide,” added Prof Atkins.

She said some steps that companies could take are to develop extinction prevention KPIs to measure the success or failure of species protection projects, include species extinction risk throughout risk management, internal control systems and internal audit processes, and incorporate species protection into integrated reports. She put forward the idea of an ecological value officer to support the CVO in implementing biodiversity protection mechanisms.

Formal studies planned
Professor Warren Maroun from the School of Accountancy at Wits University bsaid there is a vast amount of advice in integrated reporting, much of which is conflicting. He welcomed the move to produce one set of integrated reporting standards: “Some reporting guidelines have been confusing. We also need practical ways of implementing the standards. We need an integrated approach that is not superficial and not window dressing,” he said.

Prof Maroun said the university will running a short course on the concept of the CFO as the CVO launching in January 2021. The course will cover integrated thinking, Global Reporting Initiative (GRI) guidelines, meaningful reporting and how to build sustainability goals into the business model.