The world's multinational corporations would have you believe that their accounts provide a true and fair view of the transactions that they undertake, but this is in very many ways very far from the truth.
First of all, there is no one company that actually undertakes all the transactions that they include in their financial statements.
And, secondly, their financial statements exclude from view all the transactions between the subsidiaries that are owned by the multinational corporation's parent company.
The consequence is that the accounts present a very selective view of what actually takes place within the multinational corporation, in a format that is designed largely for the benefit of their bankers, and no one else.
In this video I explain why changes needed so that everyone interested in a multinational corporation's affairs gets the data that they need.
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Is that really true – that the subsidiary companies don’t produce any kind of (reporting) accounts in the country that they are based? It’s only the big overall umbrella company that produces a big fudgy set of accounts that misses some key details (like imports / exports)?
No I didn’t have a clue – maybe not surprising – but I’m really quite shocked, and bemused by this. I mean the subsidiary companies must have accounts, for legal and tax purposes, so is it just that it’s not put together as part of the final reporting?
I have always envisaged ‘stakeholders’ to be just that one group of capital investors, though have been curious of late about what it actually means. Really informative video Richard, thanks, and you almost immediately answered my first question ‘why does this matter’.
And, of course, accurate account reporting is needed, perhaps especially, it seems, for the big multinational corporations, for it to be used to determine any environmental impact? I don’t have much interest in business things generally, but as we are bought over by ever bigger companies and things become more opaque and confusing the bigger the company gets, I want to understand more about what’s going on.
It always seems to me, it is the biggest companies that seem to have the most sudden and catastrophic collapses – and I’m suspicious that it’s because they keep the image of a healthy company well after its sell-by date, that is, they spend more time trying to appear profitable than trying to fix any problems (or that the draconian ‘fixes’ are done just for appearances sake). It’s like a game to the people at the top, buying and selling companies and groups – but it’s actually people’s livlihoods, and people want certainty to be able to plan ahead. And where have we got to when the big international corporation starts treating employees like customers, selling them ‘benefits’ and spam emailing them corporate-mince-speak that sound more like press releases? I am always suspicious when we hear how busy and successful we all are; but by the way we can’t afford to give you any training because margins (hypothetically speaking of course). As an employee – a stakeholder – I would like to know that the business model is a good one (without having to spending enormous amounts of time fathoming detail), to decide whether to stick with them.
Strayed from the topic a bit there, but it shows how useful it is having the corporate structures & relationship explained in simple terms.
In some countries there are, of course, a council public record for the subsidiaries of multinational corporations. The UK is an example. However, this is not true of every country by a very long way. For example, it is very hard to get accounts in many places in the USA, whilst in other countries it is very difficult to track down where the accounts are available on public record. This is especially true in Europe where many accounts are filed locally, with a chamber of commerce, which is deeply unhelpful.
As to the reason why major companies are failing, I’ve been working on this issue for six months now, it being my primary focus of concern since last summer. A report is coming that suggests that many multinational support are what my colleagues and I call ‘hollowed out firms’, many of which pay out more in dividends than the earning profit, which is unsurprisingly unsustainable.
Do you already know when the report on the hollowed out firms is coming out?
This is https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjCwoqk583uAhWxTxUIHSxJBBAQFjAAegQIARAC&url=https%3A%2F%2Fwww.sheffield.ac.uk%2Fnews%2Fpolopoly_fs%2F1.892482!%2Ffile%2FAgainst-Hollow-Firms.pdf&usg=AOvVaw1lwzgK_pNAn52dn9dYUtQM
But the deeper data based analysis is still in progress
[…] This video cross refers to this one. […]
Hi Richard. Yes completely agree. Seems to be some work afoot at the IFRS to
Improve this. They are asking for feedback on group accounts requirements https://www.ifrs.org/projects/work-plan/pir-of-ifrs-10-12-relating-to-consolidated-financial-statements/
Also they are reviewing IAS 1 which may help.
Best wishes
Jonny
I have some personal experience which completely bares out what you are saying Richard. I used to work for the UK subsidiary of a major multinational insurance company (I won’t name it). headquartered in Europe. as such it had obligations under the EU “European Works Council Directive” to establish a EU wide employee representative body.
I was the UK delegate to this EWC for 8 years. The company had a declared commitment to a raft of “social, environmental and governance principles (ESG) and p;resented an image to the capital markets and wider society as a responsible employer. The EWC made strenuous efforts to hold them to account on these principles. for example in the UK collective bargaining rights were always tenuous and the EWC took this up. The Company HQ and CEO always resisted on the basis that the centre did not interfere in the management of the subsidiaries (financial targets etc excepted). They effectively just looked both ways at once. Although outside of the remit of the EWC we also made a fuss about the lack of recognition of collective bargaining rights in subsidiaries outside of Europe.
Part of the EWC tactics was to contact several large European public sector pension funds to alert them to the disinformation. To our surprise they weren’t in the least bit interested. We felt strongly that ESG verification and research institutions should incorporate employee representative bodies into their research networks. No joy there either.
Corporate capture by the money interest penetrates into every corner – it is even more effective than Heineken in reaching parts others cannot reach.
I very much fear that is still the case