Paradise Lost: Accounting Narratives Without Numbers

Table of Contents

1. Introduction

2. UK Legal Requirements on Business Model Reporting

3. Methodology

4. Locating the Business Model in Practice

   1. What is a Business Model?

   2. From Profit to Value Creation?

   3. From Shareholders to Stakeholders?

   4. From Business to Purpose?

   5. From Going Concern to Long-term Viability

5. Discussion and Analysis

6. Conclusions

7. References

To convey his moral there must be a fable, a narration artfully constructed so as to excite curiosity, and surprise expectation.

Samuel Johnson’s critique of Milton’s Paradise lost

Rethinking Non-Financial Reporting: A Blueprint for Structural Regulatory Changes

1. Beyond Non-Financial Reporting: A Blueprint for Deep Structural Regulatory Changes, by David Monciardini, https://doi.org/10.1515/ael-2020-0092.

2. Non-Financial Reporting & Corporate Governance: Explaining American Divergence & Its Implications of Disclosure Reform, by Virginia Harper Ho, https://doi.org/10.1515/ael-2018-0043.

3. The impact of climate change in the valuation of production assets via the IFRS framework – An exploratory qualitative comparative case study approach, by Rebecca Scholten, https://doi.org/10.1515/ael-2018-0032.

4. A country-comparative analysis of the transposition of the EU Non-Financial Directive an institutional approach by Selena Aureli, https://doi.org/10.1515/ael-2018-0047.

5. The Challenges of Assurance on Non-financial Reporting, by Amanda Ling Li Sonnerfeldt, https://doi.org/10.1515/ael-2018-0050.

6. Integrated reporting and sustainable corporate governance from European perspective, by Jukka Tapio Mähönen, https://doi.org/10.1515/ael-2018-0048.

7. Why ‘less is more’ in non-financial reporting initiatives: concreate steps towards supporting sustainability, by Georgina Tsagas, https://doi.org/10.1515/ael-2018-0045.

8. Planetary boundaries and corporate reporting the role of the conceptual basis of the corporation, by Andreas Jansson, https://doi.org/10.1515/ael-2018-0037.

9. The financialization of civil society activism: sustainable finance and the shrinking of bottom-up engagement, by Davide Cerrato, https://doi.org/10.1515/ael-2019-0006.

10. Paradise Lost Accounting Narratives Without Numbers, by Mario-Abela, https://doi.org/10.1515/ael-2019-0035.

1 Introduction

Corporate reports are not expected to be fables but documents of record, with financial statements presenting a set of ‘facts’ resulting from the accounting system – at least that is the intended moral of the story (Hopwood, 1987). The privileged status of the corporation with limited liability comes with a price tag: a standard of accountability and transparency (Weinstein, 2012). In 2006, at the high watermark of New Labour in the United Kingdom (UK), it was installing its variant of the modern corporation, with the promise of a more enlightened and gentler capitalism in sight. What materialised was somewhat less spectacular – codification of existing Common Law requirements for directors of the company, clarifying that the corporate form did not give them an unfettered right to generate wealth and returns for shareholders at the expense of other stakeholders, though it fell short of undermining the dominance of shareholder primacy (e. g. Talbot, 2016). The changes introduced by a newly elected Tory Government in 2013 made further changes to replace the Operating and Financial Review with a new and innovative Strategic Report that carried with it all the hallmarks of the much lauded Integrating Reporting (IIRC, 2013b).

Unlike the OFR, which was mainly intended as a commentary on the financial statements, the Strategic Report was much more than that as now it had to tell a story about value creation. The business model was intended to be the central disclosure of the Strategic Report, providing the key elements binding together all the content into a compelling narrative. However, consistent with the notion of Enlightened Shareholder Value (ESV) in the Companies Act, this innovation in corporate reporting was an instrumental part of the broader neo-liberal project to make capitalism and its effects more palatable by being more inclusive and kinder (Thrift, 2001) but not necessarily more accountable (Johnston & Talbot, 2018). It was an opportunity lost: the new corporate reporting requirements could have provided greater accountability – especially by making transparent the impacts of value creation, but instead it became a placeholder for the narrative without numbers (Robé, 2012).

The dominance of the economic rationale installed in the 1970s placed the owners of capital at the centre of the corporation’s existence. It emphasised the primacy of their need for returns and the immorality of attempting to deal with social and environmental problems – these ‘externalities’ were for governments and civil society to address, with the legislature supplanted by the wisdom of the free market (Friedman, 1970). Shareholder primacy has presided over decades of resources being extracted and misappropriated resulting in the irreversible destruction of the planet and communities (Stoknes & Rockström, 2018) and this has gone largely unaccounted for in the annual reports of corporations. The neo-liberal logic of an unflinching focus on shareholders was being challenged by corporate reporting reforms, but the business model was quickly sequestered to function as a market device (Doganova & Eyquem-Renault, 2009) performing its role to refashion, rather than break away from, shareholder primacy and installing a grand narrative to further conceal rather elucidate its impacts.

Some scholars have argued that despite the growth in non-financial reporting^[1], the financial narrative continues to dominate company discourse (e. g.Brown & Dillard, 2014; Stubbs & Higgins, 2015) partly because of the ancillary nature of non-financial factors in predicating of financial returns (Cho, Michelon, Patten, & Roberts, 2015). This study arrives at a different conclusion: disclosure of the business model (and by extension other non-financial disclosures) has led to four major shifts in the discourse of corporate reporting in the UK: (i) from profit to value creation; (ii) from shareholders to stakeholders; (iii) from business to purpose; and (iv) going concern to viable entity. Those pairings are inextricably linked signifying not just a substitution of terms but a noticeable shift to a set of unstable notions which enable companies to craft narratives that are no longer constrained by the accounting numbers (Beckert, 2019).

To explore whether the changing discourse about corporate reporting marked a break with shareholder primacy and the beginning of accounting for externalities, senior executive in FTSE 350 companies, standard setters and others were interviewed to understand how they construct the business model and situate it within a wider narrative about value creation. Despite the rhetoric that has seduced both academics and practitioners alike (Dumay, Bernardi, Guthrie, & Demartini, 2016) value creation has not been redefined but continues to a cash-based concept^[2]. The issues raised are considered against recent developments in the economic sociology literature (Beckert, 2019) and is underpinned by a social constructionist research philosophy (e. g. Gergen, 1999). The paper proceeds in four sections: a brief review of the legal requirement for disclosing a company’s business model; an explanation of the methodology and methods used to collect and analyse data; followed by discussion and analysis of the research findings drawing in relevant aspects of the literature; and finally some concluding remarks. The findings show that the shifts that were initiated had a different outcome to what was intended by the UK government in creating an identity between shareholder interests and those of other stakeholders. That is by taking care of stakeholders, businesses would be more successful and shareholders would ultimately be rewarded. This mutuality of interests was the next best thing to moving towards stakeholderism which the UK Parliament rejected. As a neo-liberal world view was already encoded in the legislation, this gentle nod to stakeholders requiring directors to consider their interests but failed to gain any purchase. The result was to open the way for a final separation between the narrative and the numbers in corporate reporting, severing the link to accountability. It has, in effect, demonstrated “the devastating power of what is nothing more than the window-dressing of an ideology” (Robé, 2012, p. 3).

This paper is unique because it is, to the author’s knowledge, the first qualitative study, based on detailed interviews with key actors, that attempts to explain why the resulting disclosures of a company’s business model in the UK have failed to result in meaningful disclosures about ‘value creation’. Instead corporate reporting has continued its trajectory to serve as a compelling narrative without numbers, creating its own stylised view of the company and its performance. It becomes a narrative about purpose without the numbers—where its malleability serves the function of representing progress and a transformation story without the need to ground outcomes in stable metrics (Beckert & Bronk, 2018). The contribution this paper makes to the literature is that it signals the need for policymakers, investors and civil society to understand that it is not axiomatic that a change in reporting requirements will necessarily result in better information that can be used to hold companies to account. Especially where the underlying ontological view of the corporation in the law is inconsistent and pushes away from, rather than toward to, a broader stakeholder orientated notion of accountability. As a result of this tension, the business model disclosure requirements are interpreted and adapted to provide a narrative that sets out a series of beliefs and expectations about the corporation.

2 UK Legal Requirements on Business Model Reporting

In the UK, large listed companies are required to prepare a Strategic Report to accompany their financial report along with other disclosures, all of which form the ‘annual report and accounts’ (Companies Act 2006). The Companies Act 2006 was intended to mark a departure from a pure ‘shareholder primacy’ perspective to something more nuanced: ‘ESV’ which codified the need for the directors to have regard to various stakeholders beyond shareholders^[3]. A move towards a ‘stakeholder’ view was debated and what resulted was a form of compromise:

There was a time when business success in the interests of shareholders was thought to be in conflict with society’s aspirations for people who work in the company or in supply chain of companies, for the long-term well-being of the community and for the protection of the environment. The law is now based on a new approach. Pursuing the interests of shareholders and embracing wider responsibilities are complementary purposes, not contradictory ones (Department of Trade and Industry, 2007, p. 2).

This statement by Margaret Hodge MP lays to rest any potential conflict between shareholder needs and others. The result is that little has changed and ESV is typically interpreted as not imposing any new responsibilities on directors and remains aligned with the company law in the US (Talbot, 2016b). The changes do not represent a move to stakeholderism and its promise of a more equal settlement amongst all stakeholders (Freeman, 2017).

The chain of logic in the Companies Act 2006 cascades from the overall ESV notion which underscores the primary fiduciary duty of directors to ‘promote the long-term success of the company’ (Section 172). The reporting requirements under the Act are set out in Section 414C which states: “The purpose of the strategic report is to inform members of the company and help them assess how the directors have performed their duty under section 172” – accordingly, the reporting requirements are intended to ‘mirror’ the directors’ fiduciary duties thereby creating an accountability link. However, there is an inherent fault-line in the legislation because whilst Section 172 takes an ‘enlightened’ view, it sits awkwardly with Section 414C which encodes financial reporting rules by requiring disclosures to conform to the reporting conventions adopted for the financial statements^[4]. Accordingly, the scope and boundary of the business model is circumscribed as that for the ‘reporting entity’. As Callon notes:

…if calculations are to be performed and completed, the agents and goods involved in these calculations must be disentangled and framed. In short, a clear and precise boundary must be drawn between the relations which the agents will take into account and which will serve in their calculations and those which will be thrown out of the calculation as such (Callon, 1998a, p. 16).

In other words, the default to accounting means stakeholders and the impacts of the business model on them are pushed outside of the calculation. If, for example, the reporting entity shifts all of its manufacturing to an outsourced relationship with suppliers in developing countries with poor working conditions that externality is not accounted for (apart from perhaps a greater margin on goods sold):

• We book the resource transfer:

• Dr Purchases

• Cr Cash

• And the accounting system ignores what sits outside the reporting entity boundary:

• Dr Full Labour Costs

• Cr Employee Wages

• Cr Employee Contribution in Kind

No reporting entity books that final credit because the uplift in labour costs (if we were to apply fair value measurement^[5]) is ignored, as are environmental ‘discounts’ applied. Nothing in the UK legal requirements would compel companies to report that ‘difference’ in either the narrative or the numbers and under existing auditing standards, the statutory auditor would most probably advise a company to remove it.

The specific requirement to disclose the business model is set out in Section 414C(8)(c) “a description of the company’s business model”. In 2014, the FRC issued non-mandatory Guidance on the Strategic Report (FRC, 2014). That Guidance was intended to elaborate on the requirements set out under the Companies Act (2006) setting out the expectations of the FRC. The disclosure requirements for the business model are set out in paragraphs 7.12–7.16 which set out the purpose, function and content elements (See Table 1).

The disclosure requirements are comprehensive in the breadth of information that should be included to explain a company’s business model. They also broadly encompass the key features of business models discussed in the academic literature. These disclosure requirements are similar to those promoted under the International Integrated Reporting Framework (IIRC, 2013b) and the European Union’s Non-financial Reporting Directive 2014/95/EU. The FRC Reporting Lab has now conducted two reviews of business model reporting in the UK – in 2016 and again in 2018. The Lab noted in both reviews that practice is still falling short of the intended disclosures of an entity’s business model (FRC, 2016a, 2018a). This is somewhat surprising given the attention and prolific references to the ‘business model’ in the FRC’s guidance and in annual reporting reviews undertaken by the Big Four (e. g. Deloitte, 2016; PWC, 2015). A global survey undertaken by PwC in 2017, indicated that only 45% of investors believed that companies had done a good job of explaining their business model (PWC, 2017, p. 3). In their own review of the quality of the annual reporting in the UK, the FRC found that:

Our reviews found that while many companies make reference to the NFR matters in their annual reports, the disclosures are sometimes generic and do not always identify the company’s policies in these areas, the specific outcome of those policies or any due diligence carried out in relation to them. We also found that companies sometimes overlooked the fact that the regulations require disclosure of the impact of the company’s business on the environment, as well as the risks that environmental matters pose to the company (FRC, 2019, p. 25).

The legal sociology literature points out that adoption and compliance with regulatory requirements is not a simple process:

With respect to behaviour, numerous studies have shown that how people respond to regulation is more complex than a binary "comply" or "not comply" response, and that their responses can be shaped by a calculative pursuit of profit, but are also shaped by their normative values (whether they agree with the requirement); their interpretive framework, including the view of those in their social network or with whom they interact in the market (what their peers are doing, what those in their immediate locality expect of them, their "social licence" to operate), or the nature of their interactions with the regulator (their sense of fairness and due process in that interaction); and their own capacity to comply (Black, 2013, p. 416).

Accordingly, even with detailed guidance, it is not clear that the expectations of the FRC would necessarily be satisfied nor those of investors relying on the disclosures to understand a company’s business model. This notion of having loose principles that could be adapted to a specific entity is consistent with the findings of recent sociological studies on financial regulation (Thiemann, 2017). The broad principles allow for the construction of grand narratives by companies, which have a powerful preformative role in co-ordinating the expectations of heterogenous actors. By creating a plausible story that market participants adopt, that ‘story’ serves to construct a new ‘reality’ that forms the basis of their strategy (Boyer, 2018).

3 Methodology

The analysis in this paper is based on an interpretative approach (Schwartz-Shea & Yanow, 2012) employing the qualitative method of semi-structured interviews. Interpretative approaches are not uncommon in accounting research (Beattie & Davison, 2015) though they run against the grain of mainstream positivist-based research. The interviews under taken were of 16 senior executives (drawn from finance, strategy and investor relations) in FTSE 350 companies (9), investors (1); global and national standard setters (including board members and technical staff) (4) and non-governmental organisations (including a company law expert) (2). Based on the business model literature, a set of questions were developed and used to guide the interviews with actors in the reporting ecosystem to understand how the business model was being constructed in practice. All the participants were experts in corporate reporting and held senior positions in the reporting supply chain. The aim of interviewing different actors was to establish whether constructions of the business model differed among them. Interview participants were identified using the snowballing technique (Lune & Berg, 2017).

The interviews were carried out between January and May 2018 mainly in London, UK. The interviews were recorded and transcribed. The interview transcripts were analysed using NVIVO 12. The analysis of the interview transcripts employed an abductive approach by first considering the themes expected to be found from a review of the literature and formed the first basis of coding the interviews. In the second sweep of coding, codes were developed inductively based on the themes and issues raised by the interviewees (See Table 2).

The principal task was to identify the ways of constructing the business model and to draw meaning from the explanations provided by the interviewees.

4 Locating the Business Model in Practice

5 Discussion and Analysis

What is going on here in how practitioners are making sense of the business model? While there is an understanding that the concept serves to colonise new arenas of value it is more nuanced than that in practice. It is clear that the business model has a job to do (Callon, 1998b; Doganova & Eyquem-Renault, 2009; Doganova & Muniesa, 2015; Muniesa, Millo, & Callon, 2007): finding non-assets to colonise and convert into future revenue streams (Doganova & Muniesa, 2015), it follows that these are the new frontier resources not recognised in the financial statements because they are part of changing expectations (Beckert, 2013). These non-assets have become primary drivers of value: where authoritative sources continually cite that over 80% of company value is not captured in its financial statements (e. g. Adams, 2015) despite this only being validated by a limited study conducted by a consulting firm^[11]. Similarly, a flaw has been found in the Integrated Reporting Framework that its multi-capital approach in broadening the notion of value is problematic in practice (Sukhari and de Villiers, 2018). For example, the experience in South Africa has identified a number of weaknesses in the ability of companies to report against non-financial capitals (Van Zijl, Wöstmann, & Maroun, 2017). But any number helps to anchor the belief in value that may or may not be realisable (Tuckett, 2018). ‘Value’ has become an empty signifier (Laclau, 2006), at least in its meaning beyond cash, to signpost a new ‘form’ of capitalism. Many of the interviewees either implicitly or explicitly pointed the practical problems militating against active and meaningful business model disclosures – few senior executives are willing to layout the weaknesses in their business model. In order to make the grand narrative of the corporation palatable, the business model needs to set out the ideal employing all the elements of a successful narrative that is attractive to providers of capital.

This is becoming apparent is other business discourse. For example, the Inclusive Capitalism Coalition arose from the shocks of the Global Financial Crisis in 2008 and the proceeding period of economic prosperity. It is a coalition of businesses, investors, academics, central bankers and other policy makers with a mission to sustain capitalism and underscore the irrelevancy of socialism, in their view, as an economic model. Interestingly, though central to the Framework developed there is no definition of ‘long-term value’. The narrative begins with a focus on ‘stakeholders’ but they are quickly substituted for ‘shareholders’ in this fusion of what’s good for asset owners must lead to prosperity for the rest:

Thus, finding better ways of measuring and communicating how a company creates value consistently across all material stakeholder groups over the long term lies at the core of rebuilding trust, even if this information is hard to measure at first … The income statement is focused on in-period changes in revenues and costs, but only takes into account movements in values of certain assets and liabilities. It fails to account for the value of strategic capabilities that increase long-term shareholder returns. Without the metrics to demonstrate the value of these long-term investments, many companies face intense pressure to focus on short term results above all else (Frost et al., 2018, pp. 12–13).

This is more of the same, trickle-down economics by another name, all aimed at securing the long-term wealth of investors (Beckert & Aspers, 2011). It falls short of explaining the process of redistribution as that is seen as the role of governments (Frost et al., 2018). Figure 1 illustrates the changing notion of ‘value’ and this pivot from thinking about value over a short-term horizon to a longer term perspective – that is, from a stable to an unstable notion as ‘long-term’ escapes any precise definition. What is important to underscore is that the overall quantum of value remains unchanged which appears to be a contradiction given that the text suggests value for stakeholders should be captured suggesting that new arenas of value will be created. Therefore the only noticeable difference is that more intangible value is recognised and communicated to investors (and it would reconcile with a factor for intangible value which is already within focus of the investor). However, it is noted in the report: “we are not suggesting that intangible value should be further captured on the balance sheet” (Frost et al., 2018, p. 13), instead it would be included in the ‘non-financial’ report. What is curious in Figure 1 is the additional amount of value that exceeds market value which is not explained but potentially some notion of intrinsic value that the market has yet to price. It follows that a decline in value ‘not measured or communicated is also possible putting a significant amount of value at risk – again this demonstrates the instability of the vague notion of value that is employed, it defies measurement and yet is worth depicting.

Figure 1:

Components of value. Source (Frost et al., 2018):13.

The sentiments in Figure 1 and the text that explains it in the report reinforce the points made by the interviewees that ‘value’ as a construct has not really changed from the consideration of future cash flows. As Standard Setter 1 noted it was about maintaining a ‘fiction’ that many existing business models were in fact viable whereas in practice they are quite precarious as pointed out by Company two noting that there was a significant contract-related risk that was typically not understood by anyone in the company nor was it accounted for in any way. It is interesting that risk to cash flows which constitute prudent accounting and common for financial assets is ignored when it comes to intangibles.

In economics (as in accounting) ‘value’ is a relatively simple construct: “The present value of expected future cash flows. For example, the economic value of a fixed asset would be the present value of any future revenues it is expected to generate, less the present value of any future costs related to it” (Law, 2016). It is also founded on the belief that ‘value’ is an immutable concept governed by a set of economic laws (which rely on bold assumptions being made about the past and the future). It follows that anything that is unpriced by the market, such as externalities, are valued at zero and as calculative practices are unable to deal with null values, these resources are assumed under the neo-classical economic model to be limitless and ignore intergenerational effects can be ignored (Bithas, 2011).

This was not always the case but more a product of recent memory where purpose was equated with cash for shareholders fuelled by the financialization of the corporation (Talbot, 2016a) and declining profits has bred new techniques for extracting value from the corporation (Lazonick, 2017). Weinstein notes that the social purpose of corporations was a fundamental principle for lawyers wrestling the governance of the modern corporation. However, it is a strand of the literature that is often not cited as the cadence of the arguments collapse under the weight of the dominant and pervasive shareholder primacy myth (Weinstein, 2012). That orthodoxy is being challenged as a system of beliefs and assumptions rather than an observable feature of the market – more and more commentators are advocating that the market does not always lead to the most efficient solution (Prosser, 2006). This conviction to a particular narrative is based more on the belief that money will flow from a business model (or investment) and stresses “the human capacity to organize experience through narrative, and demonstrates how cognitive and affective responses are combined to facilitate action opportunities” (Tuckett, 2018). But what is often missing from those narratives are the negative displacement effects that operate when cash flows fail to reflect the cost of unpriced externalities created by the operation of the business model. Curiously the calculations have not changed – investors continue to focus on cash generation though they do recognise that externalities can impact the future cash flows of a company (CFA Institute, 2017). Accordingly, the story is no longer tethered to the numbers in the financial statements. Business leaders, such as Paul Poleman, former CEO of Unilever, has stated many times that a company without a purpose is unlikely to survive in today’s world (Schawbel, 2017). In the sustainability literature, scholars are increasingly turning to business models as a means of embedding sustainability within business and colonising the term ‘value creation’ to its broader limits to include environmental and social factors (Schaltegger, Hansen, & Lüdeke-Freund, 2016) but like Integrated Reporting fails to reconcile with current concept of value in accounting and economics. Sweeping into the general business narrative the notions of ‘purpose’ and ‘shared value’ (coined by Porter & Kramer, 2011) appear to be empty signifiers (Laclau, 2006) pointing to something that is not there which seems to be the case in terms of sustainability outcomes (Brown, 2016).

The business model concept has travelled from its origins in the strategic management and economics literature, it has been transplanted into accounting without modification (Girella, Tizzano, & Ferrari, 2018) ignoring the function that boundaries serve in reporting (Girella, Abela, & Ferrari, 2018). The FRC has made it clear that the application of the business model concept, for the purposes of reporting, must follow accounting norms (FRC, 2014). That gives rise to two practical issues about the scope of the business model and its boundaries. Accounting draws on but does not follow the logic of the strategic management or economics literature and has its own logic (Biondi, Canziani, & Kirat, 2007). Hopwood observed that accounting tries to emulate economics to obtain its legitimacy but then always falls short of satisfying economic norms (Hopwood, 1992).

The business model literature, with roots in strategic management and economics, is also not clear on the boundary of the business model, as that is not really a question that concerns strategists or economists but of critical concern to accountants. The reporting entity no longer bears any resemblance to the simple construct of the firm. The business model of the reporting entity becomes a chimera that does not resemble the boundaries of either the neo-classical economic notion of the firm or the accounting construction based on accounting principles anchored in property rights of sorts. It has become an untidy proposition for financial accounting being derided by some standard setters (Leisenring, Linsmeier, Schipper, & Trott, 2012) clinging desperately to neo-classical precepts and agency theory (Jensen & Meckling, 1976). Whereas its usefulness is identified by others as a potential logic for improving reporting (EFRAG, 2013; IIRC, 2013a, 2016) and a hallmark of a new era of inclusive capitalism (IIRC, 2016).

It is important to consider what remains silent in the text and left out of the interviewees responses (Bradley, 2008). The inter-generational dimension did not come up as an issue for the business model. The interviewees generally recognised the impact and dependencies of business models and viewed them as a series of decisions about trade-offs (e. g. customer preferences for Internet banking and the rights of employees). Despite the reality of climate change, critical limits being exceeded on planetary and social boundaries, they are outside of the calculation – whether that is contained in non-financial narratives or the financial statements. The inter-temporal production possibility frontiers implicit in accounting calculations hold constant: utility, substitution and the role innovation and technology, which given a zero price enables companies to ‘borrow’ from future generations without any obligation being incurred today (Fine, 2017). For accounting purposes, allocative efficiency is not part of the calculation, so no consideration is given to Pareto optimality. This has two effects: an intergenerational transfer of resources to current generations (at no cost) and as a consequence a wealth transfer drawn forward from future generations who will enjoy less resources and be burdened with obligations to remedy harm done today – together those effects represent a process of financialisation that is not sustainable. The inter-temporal dimensions of business model are generally ignored beyond binary choices: for example, extract oil or stop extracting oil and switch to another business model. There is a whole string of assumptions that the current discourse ignores: what is the transitional state between business models (e. g. from oil to renewables); the inter-generational impacts and how future generations will be required to address these problems but value (cash) has already been extracted by the current generation of investors. How do business models deal with the legacy of addressing known degradation and inequalities whilst also paying a current charge for externalities created today? A notion of long-term viability that just presumes the existing business model will run in a steady state over the chosen time horizon is a great illustration of cognitive bias and the role of beliefs in forming views about the world (Wikforss, 2014).

Based on the conversations with the interviewees and literature it is unlikely that there is a panacea to arriving at meaningful disclosures of the business model and more informed and responsible decision-making given the stories being told are no longer explained by the numbers reported (Beckert, 2019). One approach, that may be effective if it were enforced, would be to set rules around the principle of ‘connectivity’ or ‘linkage’, which would connect the business model to other content elements of the annual report and accounts’. The IIRC defines ‘connectivity’ as “a holistic picture of the combination, interrelatedness and dependencies between the factors that affect the organization’s ability to create value over time” (IIRC, 2013b, p. 16). If this principle were operationalised by requiring that business model disclosure make direct connections with the financial statements and risks, there would be a much higher imperative for directors to ensure compliance and for the auditors to be satisfied that there is consistency. Such a requirement would need to be backed up by enforcement though that seems unlikely given much of the regulatory infrastructure has been dismantled.

It is perhaps naïve policy making to address the issue of poor and potentially misleading disclosures by addressing content elements of corporate reports in an atomistic fashion. A more systemic approach is needed that addresses corporate reporting in a more holistic manner. That is, the problem needs to be tackled upstream by clarifying the corporation does not exist in isolation to the society it is part of. At present, company law in the UK maintains that the principal duty of the directors is effectively to the shareholders by not substantially requiring the need to balance the needs of other stakeholders.

There’s one benefit in terms of information being provided to the market that’s useful for them to make decisions and for shareholders to be more active. But perhaps even more impactful is requiring executives and directors within companies to start thinking about these issues themselves. And go through that process.

There are both conceptual and procedural barriers to something like that happening. On the conceptual level, directors have duties to act in the best interest of the company and to perform their duties with due care, skill and diligence. But they have very broad discretion around how they go about doing so. There’s the famous business judgement rule which is a bit of a’ get out of jail free’ card, which gives directors a wide degree of discretion about how they do go about conducting the business.

So, if they haven’t turned their mind at all to managing the business over the long term as is required under the Companies Act or the process they had for doing so was so far below the industry standard that might be grounds for charging them on that. (NGO 1)

Companies and their directors are increasingly being called to be ‘transparent’ but that is somewhat different to the legal notion of accountability. The responsibility is not just to furnish stakeholders with information but provide an account of the decisions made and their impact (Keay & Loughrey, 2014).

6 Conclusions

On the surface the interviews highlighted several conundrums: discussion of ‘purpose’, ethical and societal consideration alongside a strong focus on generating cash. This binary relationship between profit and society and the inherent trade-off seems to be a recasting rather than a rejection of the shareholder primacy myth (Stout, 2012). The language has been tempered to be more palatable to be compatible with current mores, but it is still functionally unchanged. What the interviews illustrate is that this complex narrative or ‘story’ breaks free of the numbers and fuses together notions of value (in terms of discounted value) and value (in terms of societal benefits) to be transposed under the rubric of ‘value creation’. The discourse is softened, which enables value to remain a construct about cash to shareholders, albeit overall a longer time horizon.

It is not clear how the narrative and the fusion of ‘value’ concepts articulates with the present accounting model which purports to be anchored in neo-classical economics and the efficient market hypothesis. Further research is needed on what constitutes a broader approach to value and how it should be accounted for (Barker & Mayer, 2017). The present model of financial reporting leaves unanswered how to account for the ‘non-financial’ drivers of value and the implications they have for the measurement of financial position and performance (stocks and flows). The centrality of measurement in accounting theory underscores the pursuit of quantifying externalities even if those measures yield information that is not relevant in discharging a company’s accountability to its stakeholders (however defined). It creates a tension between a difficult to define scope for the business model and financial reporting: the very notion of the reporting entity and the unit of analysis for accounting no longer accords with how the business is conceived by key actors in the financial ecosystem. There are, of course, limitations on the extent to which these conclusions can be generalised given the scale of this study. However, the qualitative evidence in terms of how key actors perceive the ‘business model’ and its function, serves to identify a discrepancy between how the business model is described in the strategic management and economics and how it is applied in practice. For more robust explanations, economic sociology provides a useful frame for analysis highlighting the preformative nature of these disclosures and the consequences that flow from them. Understanding the behaviour of companies with respecting to meeting legislative requirements is not straightforward (Black, 2013). That is, the business model functions as a mechanism for expanding the notion of value and extracting greater output by leveraging unpriced externalities and consuming intangibles that are not represented in any of the calculations. But it does more than that, it assembles and privileges those effects that are chosen by companies to describe their performance. The resulting narratives are enabled by loose regulation that lacks precision and creates unstable notions that are readily exploited. Once untethered from the constraints of the financial numbers, the narrative becomes the basis for setting and conditioning expectations of investors (and other stakeholders) and no company will voluntarily declare bad news. It sets aside the need for accountability in favour of constructing a fable that can be believed until the perils of environmental degradation and social disorder fracture that illusion.