Essec Business School

In this podcast, professor of accounting Adrián Zicari argues that value-added statement is an important communication tool that could be useful for stakeholders and help them achieve a more satisfactory agreement while supporting dialogue among company managers in different functions.

EK: Without further ado, let me ask you what is a value-added statement?

Adrián Zicari: It’s an accounting statement that explains how a company creates and shares value towards a large collection of stakeholders.

EK: What is the difference between a value-added statement and a standard accounting statement, if there is any of course?

Adrián Zicari: With value-added statements, we go a step further and we try to explain how this value was created. Basically, we take out anything that was bought outside the company, then we explain how it was shared among employees. Therefore, with value-added statements, you have a picture of the value that the company creates and the value it shares.

EK: Correct me if I’m wrong, but I get the feeling that value-added statement provides a more encompassing view of the company’s performance.

Adrián Zicari: Indeed, it does, because you see a few issues that are difficult to tackle in a classical profit and loss statement. For instance, you see clearly how much is given to employees; you clearly see how much is retained or kept in the company for the sake of business; etc. So, in terms of clarity, this document explains things a bit better.

EK: However, because the complexity of stakeholder relations cannot be addressed by a financial indicator alone, could we then consider that the focus of all value-added statement models on the distribution of economic value may appear to be reductionist?

Adrián Zicari: Yes and no. It’s an answer that any accountant would give. So, yes, in the sense that many issues that correspond to performance, to company’s performance, cannot be perceived in any financial, in any economic report. However, many issues related to the environmental impact, social impact, non-monetary issues, etc. have to be addressed by other kinds of reports, which are complementary. On the other hand, on the right side I could say, a value-added statement is a tool that can help you; it contributes to clarifying things that are sometimes difficult to see in a profit and loss statement. I would say that both, the profit and loss statement and the value-added statement are complementary.

EK: For your case studies, you chose companies based in Mexico and Uruguay. What motivated your choice, why did you choose Mexico?

Adrián Zicari: For two reasons, data availability, on the one hand, these two companies have been using value-added statements for more than a decade, and their size, on the other, they are large and therefore impactful companies.

EK: In both your case studies, you bring up the fourth financial statement. Could you tell me in a few words what is the fourth financial statement?

Adrián Zicari: The value-added statement is the generic term. Therefore, the fourth financial statement is one of the “species”, I would say, one of the standards that exist - there are several standards. And that’s an issue. For the moment being, we do not have a commonly shared standard for value-added statements.

EK:  Did the managers you meet understand the importance of the reporting tool you were introducing, did they understand that it would strengthen the firm’s reputation? What was the general reaction?

Adrián Zicari: We saw that managers like the report because it helps them better understand what the company’s doing; they rely on it. In terms of reliability, of confidence, they feel perfectly well at ease. And they understand better what the company is doing because the report goes beyond the classical idea of “stakeholders alone”.

EK: Were there any common findings, I mean, common to the two case studies?

Adrián Zicari: These two studies have helped us perceive how companies reacted or changed because of the economic situation. In one of the cases, the company tried to keep their people safe, despite the huge changes in their activity. Ok, the company was not making as much money as it did before, nevertheless, it tried to keep its people in a safe position. So, this kind of study helps you observe a company’s policy.

EK: What did you observe?

Adrián Zicari: You may see several things, for instance, you can observe how companies choose some stakeholders in line with the company’s mission. Let’s take the example of a firm that has to reinvest in the country’s infrastructure. So, it means that you can see how they would increase their investments in that area. It’s interesting to follow the choices a company makes in the long-run. And how things can change over the years.

EK: What are the managerial and public policy implications?

Adrián Zicari: There are many. Managers reach a more comprehensive understanding of the company they manage. In terms of public policy, I would say that this is a tremendously useful tool for public government officials that would like to keep track of the value created and the value shared.

EK: Did the question of income distribution play a role in your choice to conduct your case studies in Mexico and Uruguay?

Adrián Zicari: Yes, it’s a good point. Latin America, according to the Gini index is one of the most unequal regions in the world. And that could possibly explain why this type of accounting report is so important. It allows these companies to account for the distribution of value, that could be an issue in Latin America.

EK: And apparently, they do, which was the surprising part in your case studies. I thought it was surprising because it’s not something that we normally expect in Latin America.

Adrián Zicari: It’s important to mention that Brazil made similar models mandatory for all companies on the stock exchange market. There are similar models in South Africa. So, you can see that countries that have issues of income inequality are interested in using this kind of reports.

EK: Are value-added statements something that we can find in Europe?

Adrián Zicari: Yes, a few attempts have been made, in Italy and in Germany. And in both countries, they have used similar models for a while. But, it is important to highlight the fact that these models are not mandatory, so the companies can choose whether to use them or not. But I think it’s a good initiative. The idea, in terms of public policy, would be to come to an agreement and use a unique standardized model.

EK: And according to you, why was it important for emerging and developing countries to develop this kind of accounting model

Adrián Zicari: The important thing with this model is that you are not simply reporting to investors, you are in fact reporting to a larger “audience”. And in some countries where inequality exists, perhaps one of the roles of a company is to contribute to moderating the income inequality situation

EK: Thank you, Adrian, this was quite interesting. With your help, we now know what value-added statement is. Thank you for joining me.

Adrián Zicari: Thank you.