Risk and rewards for good citizens

CCB

 

Posted in: Analysis/Comment, Speaking Out, Sustainable Investment

Risk and rewards for good citizens

October 01, 1999

Turnbull committee reports on internal controls

Listed companies must comply with new standards on managing and reporting risks, starting with years ending on or after 23 December 2000. These go beyond conventional financial worries to include social, environmental and ethical threats. The Institute of Chartered Accountants of England and Wales published the final report of the Turnbull Committee on September 27 and the Stock Exchange has made it part of the mandatory corporate governance requirements, following earlier work by Cadbury, Greenbury and Hampel. Now companies must have an ’embedded’ internal controls system to monitor threats, and directors are required to consider market, credit, liquidity, technological, legal, health, safety and environmental and business probity issues.

In addition to the code itself, the Institute has published Implementing Turnbull: A Boardroom Briefing, explaining the changes and setting out the practical steps needed. Contact ICAEW on 0171 833 3291 (http://www.icaew.co.uk/internalcontrol) or Accountancy Books on 0171 920 8991 (http://www.accountancybooks.co.uk)

Dow Jones launches sustainability index

Dow Jones and Swiss based SAM Sustainability Group launched the first ever global sustainability indices on September 8, to track the performance of ‘sustainability-driven’ companies. Nearly 230 companies, drawn from the Dow Jones global index of 3,000, are being monitored and ranked according to criteria such as use of innovative technology, stakeholder relations, industrial leadership, concern for ‘social well-being’ and corporate governance. The data have been backcast for five years to provide longer-term trends and initial results show that sustainable companies have out-performed the global index substantially over the past five years (137% growth compared with 96% among all companies). European companies are more advanced than their American counterparts, with Unilever, Norsk Hydro, BMW and Deutsche Telecom among the leaders. Contact Dow Jones Sustainability Group Indexes on 00 41 1 395 2828 (http://www.sustainability-index.com)

New look Queen’s Awards to highlight social impact

In future companies will have to demonstrate a record of social and environmental responsibility if they are to gain recognition under a relaunched Queen’s Awards scheme. Renamed as the Awards for Enterprise, the changes follow a review headed by HRH The Prince of Wales, recommending that the vetting procedure “be expanded beyond compliance with the law, to include good practice in relations with suppliers, employees and customers, in environmental management and in community relations”. Contact The Queen’s Awards Office on 0171 222 2277 (http://www.queensawards.org.uk)

EIRIS to cover continental Europe

The Ethical Investment Research Service has expanded its coverage of European companies, and is now collecting data on all the non-UK companies in the FT / Standard & Poor’s Euro index. The decision to upgrade the European listing was prompted by the strengthening of ethical investment policies in continental Europe and EIRIS now plans to expand its service to US companies following requests from clients. Contact Simone Saunders, EIRIS, on 0171 840 5700 (http://www.eiris.org)

Responsible companies do better

Research by Nottingham University Business School suggests that British companies with good reputations for community and environmental responsibility perform up to five per cent better financially than firms without. Average returns on capital employed were between 2.6% and 8.8% pa higher among companies rated highly in Management Today’s Britain’s Most Admired Companies surveys from 1991 to 1997. The corporate reputation of 250 companies are assessed by executives from competitors within the same industry grouping and by financial analysts. Contact Steve Toms, Nottingham University Business School, on 0115 951 5276 (http://www.nottingham.ac.uk/unbs)

More companies adopt global ethics codes

A report released on August 10 by the Conference Board reveals that a growing number of companies in every region of the world are formulating, implementing and monitoring global business practice standards. Based on discussions in Conference Board meetings and a survey of 124 companies in 22 countries, Global Corporate Ethics Practices: a developing consensus suggests that a desire to avoid legislative or judicial intrusion and growing participation in global markets are the main drivers behind the trend. The Board found a five fold increase in the number of companies able to provide a copy of their code since its last study in 1992. The report details variations in approaches between the US, Canada, Latin America, Europe and Japan, and sets out a best practice approach to securing compliance. Contact Ronald Berenbeim, Conference Board, on 00 1 212 339 0352 (http://www.conference-board.org)

Diageo outlines corporate citizenship

Diageo, formed by the merger of Grand Metropolitan and Guinness, issued a new set of corporate citizenship guidelines on September 14. Following consultation with internal and external audiences, the objective is to ensure the group makes a positive social, environmental and economic impact by establishing best practice, such as:

•acting with integrity in business dealings;

•taking social and environmental factors into account in decision-making

• measuring, evaluating and reporting the total impact;

•committing 1% of pre-tax profits to a carefully targeted programme of community investment;

• accepting wider responsibility in the field of alcohol and society.

Diageo has also issued a pilot ‘social audit’ of a subsidiary, UDV Poland, covering economic, social and environmental performance. Issues addressed include consumer service, local sourcing, employment, tax contributions, technology transfers and community contributions. Contact Joe Franses on 0171 654 5600 (http://www.diageo.com)

Comment

We have said it before but it is well worth repeating – the new Turnbull approach to managing business risk offers a great opportunity for corporate responsibility managers to mainstream their contribution to the company. Of course, no one is arguing that the merits of an individual charitable donation will feature on the corporate risk ‘Richter scale’. But corporate responsibility and sustainable business practices more generally on occasion certainly will, particularly for companies selling in consumer markets. Ask Shell, Nike or Monsanto about the damage a pressure group-driven consumer boycott can have.

Really for the first time, finance directors will have to focus on these issues or risk audit qualifications and Stock Exchange difficulties. Part of an embedded system of internal risk control must be policies and procedures around corporate citizenship, with monitoring and reporting. Who knows, the FD may even sanction a budget increase.

Corporate Citizenship Briefing, issue no: 48 – October, 1999

COMMENT:

The mainstreaming of corporate responsibility gathers pace, with new Stock Exchange requirements to manage ‘social risk’ and growing evidence that getting it right pays dividends.

We have said it before but it is well worth repeating – the new Turnbull approach to managing business risk offers a great opportunity for corporate responsibility managers to mainstream their contribution to the company. Of course, no one is arguing that the merits of an individual charitable donation will feature on the corporate risk ‘Richter scale’. But corporate responsibility and sustainable business practices more generally on occasion certainly will, particularly for companies selling in consumer markets. Ask Shell, Nike or Monsanto about the damage a pressure group-driven consumer boycott can have.

Really for the first time, finance directors will have to focus on these issues or risk audit qualifications and Stock Exchange difficulties. Part of an embedded system of internal risk control must be policies and procedures around corporate citizenship, with monitoring and reporting. Who knows, the FD may even sanction a budget increase.

Corporate Citizenship Briefing, issue no: 48 – October, 1999

COMMENTS