Large firms are bad at explaining their role in Britain’s economy
BIG BUSINESS bashing is all the rage, whether over tax, rising energy costs, or bonuses. But as some point out, we need these businesses for our economy to make a full recovery, even if large companies need to change their ways and do more to regain public confidence.
ACCA’s army of finance professionals see first-hand the contribution major corporations are playing in rebuilding, strengthening and boosting the economy. Yet while “big business” can do more to earn the trust of the public, many are already doing a lot, but are struggling to explain it.
Tax avoidance has become a filthy phrase, and some firms have been attacked over how much corporation tax they pay. Yet there is a sense of tunnel vision around corporation tax, as big companies contribute handsomely to the Treasury. The Hundred Group, made up of finance directors and chief finance officers (CFOs) in the FTSE 100 and other large firms, reported in its Total Tax Contribution Survey in January this year that their companies contributed £77bn in borne and collected taxes, making up 14.2 per cent of all receipts. In the New Year, the group will report on their tax contribution for 2013. My guess is that it will be in the tens of billions again, or even more.
But they don’t just pay corporation tax. The Hundred Group points out that 24 different taxes are levied on businesses, and for every £1 in corporation tax those companies paid, another £2 was paid in other business taxes.
And in pursuit of their profits, big businesses play a vital role for households across Britain and even for other markets – in job creation. FTSE 100 companies alone employ more than 2m people, estimated to be 7 per cent of the UK workforce. Businesses also commonly have training and career development programmes. Many ACCA members who are working within large businesses became qualified thanks to their employer’s commitment to nurturing the best talent. The size of these organisations has an added benefit in that there is opportunity to gain wider experience via sideways, as well as upward, career moves.
Many CFOs in large corporations tell us what new skills they hope to see in the next generation of finance professionals, so training is always front of their mind. Developing world class skills is part of the value these organisations offer to the UK economy.
Another key role is in workplace pensions. While auto-enrolment is being rolled out to businesses of all sizes, the big guns have been providing pensions for years, with FTSE 100 companies actually increasing contributions into their defined contribution schemes during the downturn.
LITTLE AND LARGE
A lot of effort is going into boosting the UK’s small and medium-sized enterprise (SME) sector, and rightly so. Our economic strength must include a healthy SME community. The Department of Business, Innovation and Skills’s recent Business is GREAT campaign is testament to the government’s efforts to make the UK fertile for SME growth. But we can’t have healthy small businesses without larger ones.
Many SMEs have big business customers, or are in supply chains that feed into those businesses. Take the larger companies away, and you leave many SMEs without a major customer base. It’s easy to think of small businesses as local shops or bedroom startups, but many only deal with other businesses, often larger ones. Large corporates come under fire for late payment to small suppliers, and efforts are afoot to tackle that. But the flip side of having a big business customer is not only income, but job creation within SMEs.
Look at the construction sector, for example, where major property developers turn to local businesses for materials and contract workers. There is an ecosystem that should be recognised and encouraged. Even beyond the SME-large corporation relationship, part of the thinking behind the SME drive is surely to help those firms one day become larger businesses. We all know the story of the guy who started a business selling records from a telephone box and turned it into one of the most successful businesses on the planet – (Virgin, if you haven’t worked it out yet).
Business innovation is led by some of the UK’s largest companies. They act as experimental labs for new models and ways of working, not to mention new products. The Hundred Group found that the large companies that took part in its survey invested £2.5bn in research and development in 2012. And bigger businesses are shaping their business models to incorporate smaller firms. Amazon, for example, has some 2m sellers operating through its platform.
ACCA’s own research shows that much innovation is driven by the finance functions within those businesses. Digital Darwinism, our recent report carried out with the Institute of Management Accountants (IMA), found that 98 per cent of accountants and finance professionals said they influence technology decisions within their businesses. Artificial intelligence and robotics, cyber security, cloud, and virtual and augmented reality were all identified as emerging by finance chiefs, many of whom were working in large corporations.
And it’s bigger businesses that are looking at new business models like Global Business Services (GBS) – the aggregation of finance, human resources, IT, property and facilities under one organisational umbrella and governance model. ACCA’s GBS report found that finance leaders, mainly from large companies, were looking at GBS as a way of bringing more value to their business. Their size necessitates it, but many have also had a taste of GBS’s predecessors – outsourcing and shared services.
ACCA is poised to publish a report looking at how finance professionals in large companies are also eyeing up big data as major value generator. Big data is genuinely important. And larger companies are doing much of the running. They have shed loads of data, and they are the ones planning how to get the most out of it – as well as considering the potential risks.
Becoming more transparent is seen as a must for big business, and not just around their tax arrangements but also in financial reporting. There is sometimes a perception that large companies are secretive. However, they are required, as ACCA members know well, to produce reams of financial statements. And even more information aimed at informing investors and other stakeholders is emerging with integrated reporting, and a desire for real-time reporting by businesses.
It would be naive to say big business should be completely transparent. They are competitive beasts and revealing too much won’t do them any good. There’s also a strong argument that too much information too frequently can lead to hyper-investment and short-termism, favouring neither business or investor.
Businesses need to ensure their customers understand financial concepts and business and economic ideas. That’s part of the problem. Big business is doing a lot, but it is not always understood. ACCA, as a professional body committed to delivering public value, is doing its part to interrogate and report on where big business is failing, but also where its contribution is vital.
Further, there is a need for government to not only highlight the contribution of small businesses, but how they interact with and grow because of big businesses, not in spite of them.
We should always remember that the outside world is looking at us. The UK should be seen as open for all businesses, including the largest. We should be celebrating, not bashing, them.
Sarah Hathaway is head of ACCA UK.