Can the Accounting/Audit Profession Be the Engine to Drive Financial Inclusion & End Systemic Racism?

The accounting profession - has and will - continue to play a key role in making the capital markets more efficient and inclusive by driving new innovations and promoting economic prosperity. The US Government has granted the accounting and audit profession the function of reviewing and independently verifying corporate disclosures since the Great Depression. Currently these disclosures have just focused on financials.

Can US corporations, the US Government, US Congress and/or Securities Regulators (like the US Securities and Exchange Commission) and the Accounting Profession work together to extend corporate disclosures to include non-financial information such as human capital -- like women or minorities on boards or senior management, pay ratio disclosures as part of their reporting process? Critical to this effort is for the US Government or securities regulators to mandate this additional corporate disclosures is a political mandate. Most of the larger companies are currently doing this voluntarily -- but there is no verification or common reporting framework for comparison between companies. The accounting profession does not have a government mandated framework to use to verify. A political mandate is needed to make this happen and I believe this is about to happen and critical stakeholders come together to support greater financial inclusion and end economic systemic racism/marginalization. The accounting and audit profession can be an engine of change but like other critical stakeholders in this process - the profession needs to diversity and become inclusive itself to match society demographics and political power. As done in the past - it can moving forward play a critical role in helping the capital markets become more diverse and inclusive.

There are federal mandates FOR FINANCIAL DISCLOSURES - including ACCOUNTING STANDARD BODIES to create and support this reporting framework. But currently this does not exist for HUMAN CAPITAL DISCLOSURE or other NON-FINANCIAL REPORTING IMPORTANT TO THE PUBLIC INTERESTS such as CLIMATE CHANGE, in the United States. A matter of fact - the US Securities and Exchange Commission has been very critical of mandating human capital disclosures.

It's also unfortunate that current leadership in the accounting and auditing profession is not taking a more active role in this process -- instead waiting for its CORPORATE CLIENTS to take a more active political role in this process. But, as has been done for almost 100 years - the accounting and auditing profession in partnership with Corporate America have created an excellent financial reporting framework and financial reporting stakeholder supply chain to support global investors. But could this same reporting system and this be enhanced to include non-financial reporting such as (Human Capital Management Information) to support better financial inclusion to end economic systemic racism using the power of the capital markets which is so much greater than government to promote change?

But there are different models in different parts of the world where the capital markets has been called by government to create financial inclusion to prevent civil war over economic marginalization. Could a similar corporate disclosure model be created quickly in the US to promote greater financial inclusion to prevent or end systemic racism/ economic marginalization?

South Africa and the KING REPORT ON CORPORATE GOVERNANCE are good examples of how government, corporations, regulators and the accounting and auditing profession have come together to make quick proactive change. Corporations in South Africa today disclosing not only financial information but also human capital data to promote financial inclusion. It's not perfect - but it's an effort to promote economic prosperity to prevent civil war over apartheid using the capital markets as an engine of change. The accounting and audit profession provide independent, third-party verification of this disclosed financial and non-financial information to the capital markets and investors around the world. The capital markets NOT government alone is helping to promote financial inclusion in a positive way to prevent civil war.

The model -- greater the inclusion -- the greater the economic prosperity. Marginalization of participants in a capital markets environment drains its growth and creates ineffectiveness and promotes instability in a democracy. By being inclusive - society grows using the capital markets as an engine of change -- greater transparency and accountability - greater the economic opportunity.

According to a recent study by the McKinsey Global Institute (MGI), employee diversity is associated with better business results. In the study, titled “Diversity Matters”, 366 public companies were surveyed from different countries in the Western World. Two key findings:

• Gender-diverse companies are more likely to perform 15% better
• Ethnically-diverse companies are more likely to perform 35% better

Although being diverse doesn’t directly translate to more sales or profit, companies who have a diverse population tend to be more successful. Here are some other statistics for you to consider:

• Earnings before interest and taxes (EBIT) increased by 8% for every 10% increase in the ethnic and gender composition of senior executive teams in the United States
• In the United Kingdom, companies have seen a 3.5% increase in EBIT for every 10% increase in gender diversity in the same senior executive team.

The Accounting and Auditing Profession Needs to Eat Its Own Dog Food and Become More Diverse and Inclusive

The IMA is one of the engines promoting DIVERSITY AND INCLUSION IN THE ACCOUNTING PROFESSION and corporate/business community with several recent articles in Strategic Finance Magazine to help members: 

https://sfmagazine.com/post-entry/september-2020-workplace-di-adapts-in-a-time-of-protests/

https://sfmagazine.com/post-entry/september-2018-building-a-diverse-inclusive-workforce/

https://sfmagazine.com/technotes/august-2016-3-ways-to-promote-diversity-and-inclusion-in-your-organization/

https://sfmagazine.com/post-entry/march-2018-tangible-value-in-intangible-diversity/ 

https://sfmagazine.com/post-entry/november-2017-a-board-members-insights-on-di/

https://sfmagazine.com/post-entry/november-2016-diversity-and-inclusion-at-ima/ 

https://sfmagazine.com/post-entry/june-2016-survey-diversity-inclusion/ 

https://sfmagazine.com/post-entry/may-2017-strengthening-diversity-and-inclusion-in-the-workplace/ 

But the accounting profession has a long way to go with DIVERSITY AND INCLUSION according to Accounting Today in May 2020

In America, as of May 29, 2019 that are approximately 654,375 actively licensed certified public accountants (CPAs). This statistic is derived from the national database of CPAs, the Accountancy Licensee Database (ALD), and is made up of official Accountancy Board data that is currently aggregated from 52 of the 55 CPA licensing jurisdictions.

The number may closer to two million professionals if you open the category to all accountants and auditors that are not CPAs but also working the accounting departments of business, non-profits and government – including enrolled agents and financial advisors. Hundreds of thousands of accountants and auditors work for the 24 federal agencies in the US that compromise the Federal CFO Council alone!

Many CPAs serve in the highest positions of Corporate America (CFOs) as well as US Government as Federal CFOs or Federal Inspector Generals -- protecting the public interest.

We have basic statistics on minorities in accounting and auditing/CPAs:

 According to the U.S. Bureau of Labor Statistics, 23 percent of accountants and auditors are non-white and according to the National Association of Black Accountants (NABA), less than 1 percent of CPAs in the U.S. are Black.

 In US CPA firms, women are only 23% of partners, yet 42% of CPAs in Accounting/finance functions and 47% of professional staff in accounting/finance functions are women.

There are no numbers or stats related to LGBTQ. A survey has never been conducted knowing that LGBTQ make up approximately 10% of the US population.

Why is DIVERSITY AND INCLUSION needed to be addressed by the accounting profession today?

In addition to the stats presented above the US population/marketplace is also changing and the business community needs to be prepared to service this growing marketplace.

 â€œAs minority populations grow in the U.S., the accounting profession (and all professions, for that matter) must grow to reflect the customers they are serving. A well-known U.S. Census prediction has minorities in the majority by 2042, and with this, professionals must understand that their window of opportunity for acting to transform the profession is closing.”

But in different parts of the country minority populations are already majority and based on this study: The new census projections indicate that, for youth under 18–the post-millennial population–minorities will outnumber whites in 2020.

The United States Itself: 

African-American Business Owners in America:

 Minority-owned employer firms in the United States increased by approximately 4.9 percent in 2015 to 996,248 from 949,318 in 2014, according to findings from the U.S. Census Bureau’s 2015 Annual Survey of Entrepreneurs.

Payroll and employment for minority-owned employer firms in the nation also increased from 2014 to 2015 by approximately 7.0 percent ($237.5 billion to $254.0 billion) and 6.2 percent (7.6 million to 8.0 million people employed), respectively. Receipts for minority-owned firms in 2015 were estimated at $1,168.5 billion â€” not statistically different from the 2014 total of $1,089.7 billion.

“California led all states in the number of minority-owned firms with approximately 228,148 (22.9 percent of the U.S. total of minority-owned firms) and the New York-Newark-Jersey City, NY-NJ-PA metropolitan area led the 50 most populous metropolitan statistical areas in the number of minority-owned firms (approximately 127,736 or 12.8 percent”), said Kimberly Moore, chief of the Economy-Wide Statistics Division.

More than one-quarter (14) of the 50 most populous metropolitan statistical areas had approximately 15,000 or more minority-owned employer businesses. About one-third of employer firms (34.6 percent) in the accommodation and food services sector were minority-owned.

Source: US CENSUS

 Women Business Owners Becoming Mainstream in American and their economic and political power continues to grow:

As of January 2017, there are an estimated 11.6 million (11,615,600) women-owned businesses in the United States that employ nearly 9 million (8,985,200) people and generate more than $1.7 trillion ($1,663,991,700,000) in revenues. Over the past 20 years (1997–2017), the number of women-owned businesses has grown 114% compared to the overall national growth rate of 44% for all businesses. Women-owned businesses now account for 39% of all U.S. firms, employ 8% of the total private sector workforce and contribute 4.2% of total business revenues. The combination of women-owned businesses and firms equally-owned by men and women account for 47% of all businesses. Women business owners are looking for women accountants but only 19% of the accounting profession are women.

THE 2017 STATE OF WOMEN-OWNED BUSINESSES REPORT Commissioned by American Express

 LGBTQ Business Owners and its relationship to Diversity & Inclusion in the Accounting Profession/Business Marketplace:

An estimated 1.4 million American LGBT business owners is considered -- LGBT input to the economy is over $1.7 trillion. That would make LGBT Americans the 10th largest economy in the world. For a little perspective, that’s bigger than the economies of Australia, Canada, and South Korea combined. 

More than 75 percent of LGBT adults and their friends, family, and relatives say they would switch to brands that are known to be LGBT friendly. In 2017 alone, the LGBT consumer buying power was over $917 billion. 

ADVOCATE MAGAZINE: The LGBT ECONOMY IS AMERICA’S FUTURE

 The “Big Four” accounting firms and several professional associations are taking actions to address the LGBT community through their DIVERSITY AND INCLUSION EFFORTS - note mostly in the UK: 

“Big Four” Accounting Firms target LGBT marketplace in DIVERSITY & INCLUSION efforts

ICAEW IN THE UK SUPPORTING LGBT DIVERSITY AND INCLUSION IN THE ACCOUNTING PROFESSION

 Why is DIVERSITY AND INCLUSION IMPORTANT IN THE CAPITAL MARKETS:

The most recent Cone Communications Millennial Corporate Social Responsibility Study gives an inside look into the unique attitudes, perceptions and behaviors of different Millennial segments when it comes to engaging with companies around social and environmental issues.

Key findings of the study included: 

• 63% of Americans are hopeful businesses will take the lead to drive social and environmental change moving forward, in the absence of government regulation
• 78% want companies to address important social justice issues
• 87% will purchase a product because a company advocated for an issue they cared about and  
• 76% will refuse to purchase a company’s products or services upon learning it supported an issue contrary to their beliefs

 Based on these findings and others -- the CEO ACTION was created and a nationwide educational tour was launched on June 11, 2018 to help the current and future workforce recognize and minimize their unconscious bias and to take action to promote greater DIVERSITY AND INCLUSION in the workforce. Many accounting organizations – including the “Big Four” are leading this important initiative to ADAPT corporate cultural thinking to include DIVERSITY and INCLUSION in their key initiatives.  

 Representing a cross-section of more than 450 CEOs and 12 million employees, CEO Action for Diversity & Inclusion? (CEO Action) was created to address this growing need in the capital markets to address DIVERSITY AND INCLUSION.

The US Accounting Profession is playing a major role in this Corporate DIVERSITY & INCLUSION CAMPAIGN:

This effort is being led by Tim Ryan, US Chairman and Senior Partner of PwC and chair of the steering committee for the CEO Action for Diversity & Inclusion?. "As a lead signatory, PwC is investing $10 million over the next twelve months to create the Check Your Blind Spots mobile tour and help organizations build the inclusive environment employees are not only asking for but deserve."

 As the press release announcing this nationwide tour states:

The mobile information centers will provide free unconscious bias education for any organization.

This action builds upon one of the coalition's three initial pledge goals to help individuals begin recognizing, acknowledging, and therefore minimizing unconscious bias.

Furthermore, it responds to the number one request by signatories in year one for additional resources to engage the workforce, and recent research that 78 percent of Americans want companies to address important social justice issues. While institutional change must be initiated at the leadership level, CEO Action recognizes that in order to drive real change, it must create opportunity for CEOs as well as the current and future workforce to collectively participate in cultivating inclusive environments.

Marking its first year, CEO Action for Diversity & Inclusion? has rallied a record number of CEOs who acknowledge that more can be done to drive diversity and inclusion in the workplace. In addition to achieving a significant number of signatories and sharing nearly 500 actions on the CEOAction.com database, the coalition has focused on helping its signatories fulfill their commitments within the pledge. Key accomplishments include: hosting leaderships sessions that facilitated hundreds of conversations between signatories in order to share resources as well as creating formal peer networks to help signatories remain motivated, persistent and focused on driving change within their workforces.

"Greater equality is not only good for society, it's good for business. A more equal world brings forth economic inclusion and has both short and long-term benefits. But we know getting there is not easy," said David Taylor, Procter & Gamble ?Chairman of the Board, President and CEO. "Beyond simply doing the right thing, it requires continued, productive dialogue on tough topics leading to greater understanding and collaboration."

 With recent news article citing companies reportedly spending almost $8 billion a year in diversity training, CEO Action will also release a free suite of educational materials to help organizations create and maintain a diverse and inclusive culture. The tools will be designed in part by the CEO Action Working Groups, which are comprised of more than 120 experienced diversity and inclusion and human resources leaders, and represent a key part of the coalition's evolved strategy to truly impact the existing and upcoming workforce and engage more CEOs. Included in the suite of materials will be tools to measure diversity and inclusion within companies, complete self-assessments to gauge progress and toolkits on a range of topics.

CEO Action for Diversity & Inclusion? aims to drive investments that create collective opportunity for CEOs as well as the current and future workforce to address the diversity and inclusion challenges faced by the business world and society at large. Leaders interested in learning more about the coalition and accessing the upcoming free resources can visit CEOAction.com.

 CEO Action for Diversity & Inclusion? steering committee quotes:

Accenture North America CEO Julie Sweet: "At Accenture, we have an unwavering commitment to inclusion and diversity and creating an environment where every person has a sense of belonging — and can succeed both professionally and personally. With more than 50,000 employees in the United States, we have a responsibility to not only create this environment for our employees, but also to contribute to the communities where our people work and live. We have benefitted from the rich conversations and sharing of best practices with CEO Action committee members."

BCG's Regional Chairman of North America Joe Davis: "The CEO Action for Diversity & Inclusion? speaks to the need for business leaders to work together, across organizations and industries, as we tackle one of the most pressing issues of our time. Direct engagement with our people leads to informed action and thoughtful conversation at the organizational level, by pushing further and collaborating across our organizations we aim to harness the power of this collective thinking to affect even deeper change."

 Deloitte US CEO Cathy Engelbert: "We recognize that teams with a variety of backgrounds, experiences, thoughts, and insights lead to more meaningful dialogue, stronger solutions, and better business outcomes. We should be purposeful in helping each other to recognize unconscious bias in our everyday interactions, and the CEO Action for Diversity & Inclusion?'s unconscious bias education and training will help people to grow into inclusive leaders who facilitate more open and honest conversations."

 The Executive Leadership Council President and CEO Skip Spriggs: "Continuing to bring the CEO Action for Diversity & Inclusion? pledge to life by creating these tangible moments is key to bringing about continued growth, leadership and impact in the business community and in the communities where we work and live. The more we can cultivate diverse leaders who make a conscious effort to have their actions match their values, the better we will all be. "

 EY US Chairman and Americas Managing Partner Stephen R. Howe Jr: "Our current workforce and the next generation of leaders demand a lot of us, and we strive to live up to their expectations. The CEO Action for Diversity & Inclusion? pledge brings together leaders with a mindset that encourages us all to take on one of society's toughest challenges and create workplaces that empower people to drive innovation through diversity."

 General Atlantic CEO Bill Ford: "With more than 450 CEOs coming together in such a unique way, CEO Action for Diversity & Inclusion? continues to represent an incredible opportunity for innovation and disruption for the business community. Through growth and the transformational power of collaboration, we have the chance to bring new experiences and resources to our people that will hopefully not only impact their workplace, but their communities as well."

 KPMG US Chairman and CEO Lynne Doughtie: "As leaders we are raising a mirror to ourselves and the business community at large to redefine the tools we all use to advance inclusion and diversity. By collaborating on the development of resources and making those tools available at scale, we are helping to position the business community to thrive. At KPMG, we embrace that responsibility and CEO Action for Diversity & Inclusion? provides a platform for all leaders to come together to achieve this goal."

 New York Life Chairman and CEO Ted Mathas: "The role we share affords us the opportunity – and the responsibility – to lead by example and help society get to a place that reflects America's true spirit and values. The CEO Action for Diversity & Inclusion? pledge enables us to work more closely together, learn from each other, and drive integrity and respect within the communities we serve."

 Procter & Gamble ?Chairman of the Board, President and CEO David Taylor: "Greater equality is not only good for society, it's good for business. A more equal world brings forth economic inclusion and has both short and long-term benefits. But we know getting there is not easy. Beyond simply doing the right thing, it requires continued, productive dialogue on tough topics leading to greater understanding and collaboration."

 About CEO Action for Diversity & Inclusion?

CEO Action for Diversity & Inclusion? is the largest CEO-driven business commitment to advance diversity and inclusion within the workplace. Bringing together more than 450 CEOs and presidents of America's leading businesses, academic institutions and nonprofits representing 12 million employees, the commitment outlines actions that participating organizations pledge to take to cultivate a workplace where diverse perspectives and experiences are welcomed and respected, employees feel comfortable and encouraged to discuss diversity and inclusion, and where best known—and unsuccessful—actions can be shared across organizations. Learn more at CEOAction.com and connect with us on Facebook: CEO Action for Diversity & Inclusion and Twitter: @CEOAction.

Technology and Transparency and Accountability - DIVERSITY AND INCLUSION

Great article on this topic using data analytics to boost DIVERSITY and INCLUSION efforts by corporations but the key question is if technology could be deployed to remove bias in the workplace or more importantly checking to see if technology is being used to create BIAS or indirectly discriminate to prevent DIVERSITY AND INCLUSION via the companies operations.

Companies and organisations now recognise that applying the metadata lens to data relating to employees or prospective employees, derived from a multiplicity of sources, can offer significantly amplified signals of workplace problems and at the same time, it can reveal new potential and opportunities for the business. This is known as People Analytics or Talent Analytics.

For HR, gaining new insights through a comprehensive analytics system can undoubtedly improve performance, help to make the work experience more satisfying for employees and identify trends on engagement and culture and offer companies a competitive advantage. This intelligence can offer new strategies to help direct how, when and where interventions should occur.

Thus, Pfizer, AOL and Facebook use People Analytics to identify factors that correlate with high performance and retention; BP uses it to evaluate its training programs, Google uses it to dissect interviews in order to extract maximum insight as to the possible suitability of prospective hires.

In Australia, Commonwealth Bank has been using a predictive analysis tool for the past three years to answer such questions as which employees are most likely to resign and which employees will be the best performers. The analytics tool affords the Bank a predictive capability so that future problems can be avoided.

In the USA the most progressive companies in the diversity arena have already implemented big data analytics to accelerate the progress of women and other diverse groups in their organisations. The vast majority of companies ranked in the top 50 for Diversity in 2016 have achieved this status through exploiting the abundance of available data. Many of the top diversity companies employ data scientists and have installed dedicated software to help discover new pools of talent as well as to produce metrics showing that diversity and inclusion gives businesses a competitive advantage.

Conclusion:

In the United States we are at a cross-roads. Can the capital markets be diverse and inclusive and move into this growing area of economic opportunity - sustainability investments? Can Corporations make the leap to report not only on financial information but non-financial data like human capital or environment and be transparent and accountable to tap into this global market? The accounting and audit profession - like in South Africa - is prepared to be the engine of change. But not only does it need to be diverse and inclusion itself but be open to help Corporate America and Regulators make this change as well. Corporate, political and social efforts need to be aligned. Now is the time for this opportunity. The world's largest capital market needs to "step to the table" and end systemic racism and tap into the $30 trillion sustainable marketplace or our Democracy will fall because it is not inclusive. Are we afraid to follow the path that is already being created in our society? It just doesn't make business sense to hold barriers in place that does not allow financial inclusion to promote greater social change.