Is there a company out there that doesn’t promote itself as a socially responsible company.  These companies also work hard on increasing their market capitalisation (value), so where does sugar fit in?

 The gap between the book value and market capitalisation is largely unquantified but in reality it is made up of the employee value, often called HR asset value, intellectual capital and the socio-economic contribution.

There are tools to value the HR assets so this is possible, the accountants say they can value the intellectual property (although those innovative inventions are thin on the ground these days) which leaves valuing the socio-economic contribution of the organisation.  This is where the “rubber hits the road” and with some companies the socio-economic value may be neutral or even negative for example tobacco companies, heavy polluters, some alcohol promotions and maybe foods that contain ingredients that the medical profession tells us is “damaging” like excess added sugar etc.  We have been down the path of putting a value on the carbon footprint including pollution, carbon “miles” but did we transfer this to the balance sheet as a socio-economic value?

 I am not an accountant but we are all governed by accounting standards for reporting through standards like GAAP, IASB (IFRSs) and FASB which appear to prevents us from putting these values on the official book value (but they will allow goodwill which can now be impaired to make up for losses elsewhere).  However this should not prevent us from advocating for it, nor does it prevent us putting these values in as a balance sheet notes.  This has been done for HR assets and once it is on as a balance sheet note it can be used in measuring corporate performance.  Some of the large companies whose products’ socio-economic contribution may have a negative value i.e. doing more harm than good, may be concerned and will need to redefine their core business going forward.  Some of these companies promote themselves through sport and other sponsorship as “good and beneficial” so their strategic planning will be critical going forward.  In the mid 1990’s a company made the decision to retain the high sugar content in their ready to eat food but to counter the “health concerns” and to counter this they added additional advertising to the budget – this decision may have been very different if it was made today.  The food labelling, where we can read it, has the base information on which to determine largely whether the food contains excessive amounts of an ingredient that the medical profession tell us is unhealthy, like recent coverage of sugar so developing a normal, good and dangerous levels is not that difficult especially if we integrate and align it with some of the regulatory requirements we currently have.

 The inclusion of the HR asset, intellectual property and socio-economic contribution onto the balance sheet, even if just as a note, should go a long way towards explaining the gap between book value and market capitalisation or provide a better guide on what the market capitalisation should be.  The application of a sugar tax will assist government coffers and put up the price to the consumer or reduce profits marginally so will things really change.  With a more complete balance sheet we will be able to get a better comparison between organisations including government.

 We all need to think about our social responsibility and be accountable for it.  I do not think there is a company that would not benefit from demonstrating where they stand and what they have done to improve their contribution to society and the corresponding economic benefit to Australia. 

 Max Underhill

Mobile: 0407998516