Accounting and management control: how can they help manage the contradictions of hybrid companies?

Dealing with performance and socio-environmental responsibility is the challenge facing hybrid companies. At the crossroads of the public, private and not-for-profit sectors, these organisations are subject to constant institutional pressures that test their ability to take on different, sometimes contradictory, objectives. How can they combine profitability, performance and a genuine concern for the common good?

Against all expectations, the accounting and management control of hybrid companies are useful levers for reconciling divergent expectations and legitimising certain choices. Beyond the figures, a new accounting approach that is more inclusive, broader in scope and horizon, and more responsible can help to defuse the conflicts that arise within these organisations. Better still, accounting and management control can help them maintain a balance between their economic, social and environmental missions.

In their latest research (1), Aziza Laguecir, Professor at EDHEC, and her co-authors offer a comprehensive overview of the state of research on this subject and identify possible avenues for future academic work.

Hybrid companies: a delicate balance between conflicting objectives

What do we mean by ‘hybrid companies’? These organisations are at the crossroads of several logics: commercial, social and environmental. Whether public or private, their aim is to reconcile financial imperatives (profitability, growth), social ambitions (inclusion, local impact) and environmental challenges (reducing greenhouse gas emissions, sustainability).

Hybrid enterprises can be found in social entrepreneurship, public-private partnerships, cooperative societies (SCOP) and certain humanitarian NGOs. They are also present in many sectors essential to society: health, education, culture, energy, water treatment and distribution, waste management, etc.

By their very nature, hybrid organisations face constant tensions. It's not always easy to juggle the need for short-term performance with the desire to have a positive impact on society in the longer term. This is true of NGOs, which have to maintain their financial viability while maximising their impact on society, but also of public services, which are subject to budgetary constraints while having to meet performance targets.

However, there are three levels at which hybridity can be analysed. The ‘macro’ level encompasses economic reforms and institutional policies carried out at national level. The 'meso' level focuses on organisations and their networks. The ‘micro’ level is concerned with internal relations, particularly between employees and managers, where role conflicts may emerge.

This diversity of rationales, business sectors, financing and governance methods can generate tensions that are characteristic of hybrid companies: multiple values (financial, societal, environmental), conflicting objectives (short-term profitability versus long-term social impact), conflicts between the various stakeholders (shareholders, directors, elected representatives, etc.). Overcoming these tensions requires appropriate tools, particularly accounting tools.

Accounting as a tool for managing multiple values

As traditional accounting tools focus primarily on financial performance, they quickly reach their limits when it comes to reflecting the complexity of the objectives specific to hybrid businesses. These organisations need to be able to account for their values, while justifying their decisions. Not just in terms of profit, but also in terms of social and environmental impact!

In this context, certain accounting practices can help to reconcile divergent objectives, prioritise them and legitimise certain complex strategic choices in the eyes of investors, shareholders or regulatory authorities.

But which approaches are we talking about? Hybrid companies are massively adopting triple bottom line accounting (planet, people, profits), which combines financial and non-financial indicators, creating a compromise between competing objectives. In financial reports, ESG (Environment, Social, Governance) indicators are increasingly used as criteria to measure and report on a company's performance in all its dimensions. These accounting tools enable organisations to better quantify the impact of their actions on notions of sustainability, ethics and inclusion.

A recent study (2) shows the role that accountants can play in reconciling multiple values, through the participative design and implementation of new accounting practices.

A good example of integrating financial indicators with social and environmental metrics would be the RiCibo network in the Genova region. This meso-level hybrid organisation collects and redistributes surplus food in order to combat food waste and poverty in this region of Italy. To do this, it coordinates an informal network of 60 public, private (supermarkets, restaurants) and not-for-profit organisations.

Collectively, the players in the RiCibo network have designed an accounting model tailored to its multiple values and the specific needs of its stakeholders. The model incorporates financial objectives for private companies, humanitarian values and the reduction of greenhouse gas emissions for associations, and waste reduction obligations for public bodies.

Accounting and reporting have served as a means of mediation between network members. These new processes have created a bridge between different, and sometimes even competing, rationales, values and objectives. This role of mediation and link is a direct response to the management of tensions resulting from the multiplicity, diversity and sometimes disharmony of values that prevail within the member organisations of this network.

In addition to striking a balance between financial objectives and social and environmental responsibilities, this integrated accounting model enables hybrid organisations to ensure greater transparency in their decision-making.

Responsibility as a mechanism for reducing tensions

Another major challenge for hybrid companies is managing tensions both internally (between employees and managers) and externally (between different stakeholders).

These organisations are subject to constant pressure from their various publics, who have contradictory expectations: economic performance and rapid return on investment for shareholders, compliance with strict environmental standards or social responsibility criteria for institutions, and concrete measures for sustainability and social inclusion on the part of citizens and NGOs.

Meeting these multiple requirements means creating consistency in the decisions taken by the company, consistency that helps to legitimise its actions. In this respect, the notion of responsibility and the accountability phase (for example, through reporting) play an essential role.

Accountability can be seen as a common language for employees, managers and partners, giving everyone the opportunity to understand the organisation's strategic choices and thus reducing internal tensions. This process of accountability ensures that the actions taken are visible and measurable, in financial, social and environmental terms.

This act of presenting management accounts therefore promotes transparency and can help to defuse the conflicts inherent in a hybrid company and clarify its priorities.

The implementation of accountability also relies on other accountability tools. The integrated scorecard, social balance sheet and sustainability report also make it possible to monitor and report on the company's financial, social and environmental performance. These tools show the company's ability to demonstrate that its actions are consistent with its multiple objectives (economic, social and environmental) and reinforce its legitimacy in the eyes of its stakeholders.

A case study (3) conducted within the Tunnel Euralpin Lyon Turin (TELT) company, responsible for building a rail tunnel between France and Italy, shows that the implementation of accounting practices based on transparency makes it possible to meet the contradictory expectations of multiple stakeholders, while ensuring the smooth running of this European mega-project.

Towards more innovative and inclusive accounting

The development of hybrid companies, particularly those at the meso level, means that these new accounting approaches are more relevant than ever in assessing their overall performance, and not just their financial performance. More innovative and more inclusive, these methods are better able to reflect the complexity of an organisation's objectives and to reconcile sometimes contradictory values.

Integrated accounting, which includes practices such as the triple bottom line, offers a more comprehensive view of performance by combining financial and non-financial aspects such as Environmental, Social and Governance (ESG) criteria.

At the same time, the digitisation and analysis of data are now making it possible to manage performance more finely and more rapidly. Big data, combined with digital technologies such as artificial intelligence, is helping to improve the transparency and effectiveness of management control systems. The aim is to report more quickly and accurately on the multiple impacts of the actions taken, both economically and in terms of human and environmental criteria.

For hybrid organisations, one of the major challenges remains the adoption of these new accounting tools. How could these approaches be adopted more widely in this type of structure? What obstacles will need to be overcome to implement them?

Future research could look at ways of integrating these accounting tools even more deeply into hybrid organisations, taking into account their scale, the specificities of each sector and the stakeholders involved.

References

(1) Giuseppe Grossi, Aziza Laguecir, Laurence Ferry, Basil Tucker, Accounting and accountability for managing diversity tensions in hybrid organisations, The British Accounting Review, Volume 56, Issue 5, 2024, 101470, ISSN 0890-8389, https://doi.org/10.1016/j.bar.2024.101470

(2) Renata Paola Dameri, Clara Benevolo, Paola Demartini, Accounting and reporting for facing multiple values in meso-level hybrid organisations, The British Accounting Review, Volume 56, Issue 5, 2024, 101278, ISSN 0890-8389, https://doi.org/10.1016/j.bar.2023.101278

(3) Massimo Sargiacomo, Laura Corazza, Antonio D'Andreamatteo, Daniel Torchia, Megaprojects and hybridity. Accounting and performance challenges for multiple diverse actors and values, The British Accounting Review, Volume 56, Issue 5, 2024, 101152, ISSN 0890-8389, https://doi.org/10.1016/j.bar.2022.101152

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