CR Talk - What makes a meaningful company

I HAD spent the better part of the month consumed by When Breath Becomes Air (apart from work and all else).

A poignant meditation about life and death, it is written by the late Dr Paul Kalanithi, a Stanford neurosurgeon who discovered that he was going to die of lung cancer at the age of 36.

Kalanithi's book is as much about living as dying – he had spent the better part of his life training to be a top neurosurgeon. Just as he thought he was ready to live with the trimmings that come with success – better salary, bigger house and holidays, he had to figure out how to die.

What makes human life meaningful? "There must be a way," wrote Paul, "that the language of life as experienced – of passion, of hunger, of love – bore some relationship, however convoluted, to the language of neurons, digestive tracts and heartbeats." The lyrical beauty of his writing makes one ponder deeply about what makes a meaningful life.

After all, we only have one shot at living.

It also makes me think of what makes a meaningful company. Companies are institutions where we spend a better part of our lives and contribute so much of our energy and creativity.

When I started studying CR (Corporate Responsibility) and searched for this meaning, what I encountered were legal walls, political parameters and institutional borders.

The pursuit has led me to meet people and institutions working along similar lines in diverse fields – collectively striving towards re-imagining 150 years of company law and also, perhaps a more defined role for the corporation in society.

Companies are created to make profits but that profit must be made responsibly. This is surely clear by now. What kind of language do companies use to achieve this end?

It is a language tied back to win-lose transactions and win at all cost operations. It is a language that is full of jargon like stakeholder engagement and social enterprises.

Stakeholder engagement is a term to explain how companies identify people and institutions who are important to them and how they are engaged.

The term and its ambit fail to fully explain how the company is actually supported and built by relationships. An
employee for example is not just a stakeholder managed through terms of contract.

To reduce the role of an employee through a nexus of contracts is to ignore the rich and diverse roles employees lend to a company.

Another term that is bothersome is social enterprise, surely one of the hottest trends around which essentially defines a new type of "company" that is conceptualised with a social objective.

This is a very confusing notion – does this mean that all non-social enterprises ie all companies registered with the Companies Commission of Malaysia have no social objectives?

Are we saying that companies as we understand them do not and cannot contribute to society, hence the need for this formula called social enterprise?

If a company says that its role is to satisfy the minimum requirements of the law and ensure that they minimise any harm that they can do, that company is locked in the language of transaction – economists call this "externalities" – by paying their employees as little as possible, squeezing supply chains and transferring the cost to their customers as much as possible.

Companies that continue to think this way will also continue to brandish different CR jargon to suit their needs.

Even in companies with a more sophisticated understanding of CR, the practice is still defined by data, targets and reporting.

This is not unimportant but they are mere markers or testaments to progress. That testament needs to be supported by a common vision and connection.

Last month, I promised to share some of the key ingredients that go toward embedding CR strategically. Instead of giving you a list which you will never remember, it is easier to point out that the heart of the strategy is simply this – CR needs to be understood as how companies connect and thrive through relationships.

Once this understanding is established, CR will become meaningful.

Again, this is almost like imposing a foreign language to companies. The current language that is used to shield the company from accountability and truly connecting with the community comes from multiple systems: law, economics, politics, geography. It is a reflection of how CR is blanked out from the decision-making process and works as a "sum of parts".

The internal dimension of corporate power is focused on the power of corporations over individuals within, specifically the power over employment decisions, an issue that has received reams of Marxist discussions.

The external dimension looks at corporate impact on society at large, specifically corporate power to control markets, their capacity to accumulate capital and affect the economy as well as their ability to shape the forces of production.

This sum of parts understanding needs to be re-calibrated with the language of relationships in order for the company to embed a more holistic system.

Of course, the question before us now is this: is it possible to re-align this sum of parts understanding and introduce a systemised language of CR at all?

"I have come to see language as an almost supernatural force," wrote Paul Kalanithi, "existing between people, bringing our brains, shielded in centimetre-thick skulls, into communion.

A word meant something only between people, and life's meaning, its virtue, had something to do with the depth of the relationships we form."

CR is a series of relationships. It is central to both the profit and purpose of a business and must be integrated in its practices.

CR that truly connects the company with the community where it operates is what companies need to aspire for.

CR Talk - Corporate responsibility in need of a major revamp

By Dr. Jayanthi Desan for The Sun Daily

RIGHT till September 2015, this company led the Dow Jones Sustainability Index automotive sector as a leader in sustainable practices. It had a fantastic sustainability report with commitments for disclosure and scalable year-on-year targets. The Reputation Index placed it top 11 in the world for good reputation.

Of course, we now know that this company is Volkswagen (VW), which purposefully rigged its cars through a so-called “defeat device” to circumvent environmental rules, releasing pollutants beyond permissible levels into the atmosphere. By falsifying emissions data on its diesel vehicles, Volkswagen claimed that it was cleaner than it is. Eleven million cars worldwide are believed to have been installed with the particular software to pass the emissions threshold.

Craig Smith, professor of Business Ethics, previously at London Business School and now at Insead, says this: “Audi’s US advertising slogan is: ‘Truth is Engineering’. It turns out ‘Engineering the truth’ would have been more accurate.”

VW has admitted that the scandal was perpetrated by a mindset of “tolerated rule-breaking” and resulted in the resignation of the then CEO. While VW has called the crisis an opportunity for VW to introduce “much-needed structural change”, the problem goes much deeper than any spin master can help them.

The WV case is not an isolated incident of a company purporting to promote disclosure and best CR (corporate responsibility) practices only to turn out to be a façade layered by deceit. Recall Enron, BP’s Deepwater Horizon and more recently, the collapse of Rana Plaza in Bangladesh.

Some of us may say this is nothing new – eventually another case study of corporate misdemeanour in business schools around the world. The automotive sector is merely following the banking and financial sector, they say. And industry wide misconduct can be attributed to rationalisation – a way to make an excuse to justify our misconduct.

This of course is a perfect time to pick up Hannah Arendt’s Eichmann in Jerusalem: A Report on the Banality of Evil written in 1963.

Arendt coined the term “banality of evil”. When tasks are so rigidly segmented and compartmentalised, actors can fail to see their responsibility in the final outcome of the collective action. Her book reported on the trial of Adolf Eichmann, a German-Nazi colonel and one of the organisers of the Holocaust. Arendt’s point is that the evil Eichmann perpetrated was based purely on his obligation or duty to his job.

What has happened at VW is an organised and systematic exclusion of responsibility of any one individual, bound together by a common thread of deceit. Sustainability in this case has been used to mislead and build a vague notion of credibility.

The missing currency is trust.

Does this mean that CR practices are redundant and not particularly useful? Have sustainability disclosures and reporting, increasingly made mandatory by regulators around the world, lost their credibility?

The main problem with CR is that a report is a by-product of internal and external practices – both good and bad. The report then becomes reflective of a fundamentally flawed idea about CR and companies: “Competitive pressure among corporations will lead to more corporations competing to embrace CR. There will be a competitive ‘race to the top’ among companies”.

Based on this flawed notion and in order to achieve this objective, larger companies increasingly capitalise on partnering under the guise of “stakeholder engagement” and produce glossy annual CR reports.

It is instructive that many CR programmes are run by department of companies with staff who have little knowledge of what CR actually entails. This kind of thinking only leads to a negative spiral – CR-related causes become a luxury and are often placed on the chopping block when the going gets rough.

The real transformation that needs to happen is a cultural change – for a culture of sustainability to be integrated in the organisation. With the exception of a few, companies talk about culture of excellence, sales-driven culture and a culture of performance. But there is no real thought on a culture of sustainability.

So, the simple answer is this: The CR that we know must end because it is based primarily on a bolted-on glossy reporting exercise. Such an understanding of CR has been used for spin-doctoring and publicity exercises. This is the type of CR, as a bolted-on initiative, that must end – fast.

How do we then move from this bolt-on thinking to have CR built-in throughout the organisation? In the next part, I will discuss the key ingredients that are needed to embed CR in an organisation and why hollow terms like “stakeholder engagement” must end.

CR Talk - Looking back and ahead

By Dr. Jayanthi Desan for The Sun Daily

Beyond Cop21

THE OUTCOME of the global summit in Paris has been hailed as bold and historic, carving the direction for a landmark global climate action for years to come. The agreement cites "net zero emissions" at some point between 2050 and 2100. Experts have hailed the ambitious accord as "transformational" but what does it mean to businesses?

On the surface, there appears to be no real plan on how the highly-ambitious targets are to be achieved. Whether the Paris Accord is the change that it is touted to be, or plain naïve depends on how feasible the targets are.

What COP21 may stimulate is a slew of government investments and policies to catalyse clean technology which businesses will benefit.

Regardless of the accord, business leaders need to be clear that climate change impacts need to be managed and there are opportunities from solutions to climate change.

First movers will have distinct advantage but the focus will also be businesses that will innovate new solutions for change. It is these companies that will potentially be the torch-bearers of the next generation of climate leaders.

Innovation in sustainable business models

Disruptive business models will no longer be the domain of young start-ups. Established companies will be looking for ways to innovate through sustainability.

The recent winner of the Asia Corporate Excellence & Sustainability (ACES) Awards in Singapore, Bangchak Petroleum Public Company Limited is a subsidiary of state owned PTT. Locked in a fossil fuel business, Bangchak has established a renewable energy division and actively involved in solar energy.

Further, Bangchak also released its first green bond into the marketplace worth 3 billion baht (US$92 million) in March 2015. It will be interesting to see how Bangchak progresses as a leading player in the oil and gas industry with this mind-set.

Winner of the Community Care Company of the Year at the ACES Awards 2015, PT Hero Supermarket Tbk (Hero) was established in 1971 and was listed on the Indonesia Stock Exchange in 1989.

As the leading retail company in Indonesia, Hero operates six brands with more than 700 stores across Indonesia, as of November 2014. The Hero Group comprises Hero Supermarket, Guardian Healthy & Beauty Stores, Starmart Convenience Stores, Giant Ekstra, Giant Ekspres and Ikea.

Katata is Hero's flagship community programme which aids the local economy, by working with local farmers in their supply chain in providing fresh products for Giant (normal grade) and Hero Supermarket (premium grade).

Established in April 2015, this programme partners with local educational institutions and provides assistance such as sharing best practices in agricultural farming.

Products from Katata are labelled accordingly as part of the initiative to improve capabilities of farmers who are crucial to their supply chain. Hero is committed to reporting on the programme with scalable targets.

Bangchak and Hero are examples of traditional companies reinventing their businesses and supply chain to meet the demands of the changing economy.

Financing the haze

We end the year with clean air and blue skies, but for many months Southeast Asia was cloaked in smoky haze. Time called the annual fires and haze in Southeast Asia a "colossal failure of governance". While waiting for governments to wake up and take action, what can businesses do?

In September, Singaporean banks approved lending guidelines that essentially deny funds to companies linked to the haze from Indonesia.

The Association of Banks in Singapore spearheaded the guidelines to include greenhouse gas (GHG) emissions, deforestation, forest degradation and biodiversity loss among the criteria for granting loans. Singapore's biggest supermarket chain, NTUC Fairprice, also stopped selling products of suppliers who were suspected being involved in forest-burning.

Businesses need to take charge of the context. The economic price of the haze in terms of medical bills, agriculture and tourism has not been properly accounted for and if business leaders continue to suffer in silence, each one is in some way, complicit in financing the haze.

Regulatory muscle

Governments, exchanges, and regulators are also working to drive responsible business practices. Mandatory and voluntary approaches often overlap but are creating a difference.

In 2015, The World Federation of Exchanges (WFE) released its Guidance & Recommendations which identifies material economic, social, and governance (ESG) metrics which exchanges may incorporate in their disclosure guidance to companies listed on the WFE.

Bursa Malaysia has been a leading exchange in Asia in this regard by pushing for mandatory economic, environmental and social (EES) disclosure.

In late October, Bursa launched the Bursa Sustainability Reporting Guide. The guide is issued pursuant to the amendments to the main listing requirements to require disclosure of material economic, environmental and social risks and opportunities in the annual report.

Bursa has reinforced the importance of sustainability by shifting the focus from corporate social responsibility (CSR) or social obligations, to material "EES risks and opportunities" or material sustainability matters.

In 2016, Malaysian companies with market capitalisation of RM2 billion and above must incorporate a comprehensive sustainability statement.

The requirement places sustainability at the heart of strategic decision making and disclosure as boards sign off on their sustainability statements.

Challenges remain as companies still need to improve the quality of their disclosure, especially in providing meaningful and specific reporting about material EES issues. Increased reporting too often leads to boilerplate disclosure or too much disclosure on issues that are not central.

Moving beyond gender diversity

TalentCorp has been spearheading many national initiatives towards a more inclusive workplace by emphasising diversity as a source of strength.

Already, listed companies are required to establish and disclose in their annual reports their diversity policies, covering gender, ethnicity and age for board and management.

Platforms like flexWorkLife.my aim to build a network of employers and talents to optimise work-life integration, while maximising work efficiency and enhancing employee engagement.

Employers can also apply online for tax incentive on training expenses incurred to retrain women who have returned to work after a career break.

Although gender continues to lead the workforce diversity conversation, stakeholders and companies are turning their focus to additional dimensions of inclusion such as race, ethnicity and sexual orientation.

Companies need to leap from merely disclosing employee data reflecting gender, racial and ethnic under-representation, to acknowledging the need to change, as well as put measures in place to institute change. As the consumer base is diverse, an inclusive approach is translated into product development as well as customer outreach.

Integrated reporting

In the last few years, there has been increasing momentum towards better reporting. Many businesses are responding to this challenge through integrated reporting (IR) which connects the relationship between financial and non-financial performance by including sustainability performance into a company's annual report.

Although Malaysian companies are at different stages and progressing at different speeds, the journey towards integration is expected to reinforce changes in an organisation's approach to value creation and management.

As organisations develop a better understanding of how they create value and begin changing the information they report internally and externally, measurement will be a significant focus area for many companies.

Conclusion

In 2016, as companies are pushed to link their economic, environmental and social impacts together, there will be more strategic decisions and effort to manage non-financial risks and staying competitive.

 

CR Talk - Sustainability is key

By Dr. Jayanthi Desan for The Sun Daily

IT is the time of the year. Yes, Diwali is over and Christmas decorations are up. We are already thinking of presents, good food and holidays. For companies, it is the season of awards. Time to scrub up, dress your best and be ready for accolades for the year's hard work.

Earlier this month, I was at the Asian Corporate Excellence and Sustainability (ACES) Awards in Singapore where leading sustainability practices were selected after a series of highly competitive nominations. The participants were incredibly impressive, and their associated sustainability endeavours, inspiring. It was a great honour to be associated with the progress of the works being done in promoting sustainable business practices.

Of course, awards nights must stand for more than a mere opportunity for corporations to receive recognition and take a few photos. It must be an opportunity to collaborate, share best practices, and come together collectively as sustainability leaders, resolute in changing the future business landscape in Asia.

What is cause for optimism is the increased regulatory muscle that is being flexed throughout much of Asia in promoting sustainability best practices. Bursa Malaysia has been a leader in this aspect. In late October, it launched the Bursa Sustainability Reporting Guide. The Guide is issued pursuant to the amendments to the Main Listing Requirements to require disclosure of material economic, environmental and social risks and opportunities in the Annual Report. Bursa has reinforced the importance of sustainability by shifting the focus from CSR or social obligations to material "EES risks and opportunities" or material sustainability matters.

The obligations are aimed at improving the quality of sustainability practices and reporting, meet sustainability expectations of stakeholders, attract funds with a sustainability focus into the Malaysian capital market and also to facilitate more listed issuers to qualify for the FTSE4Good Bursa Malaysia Index as well as other international sustainability indices.

Sustainability reporting essentially opens up Malaysian companies to the global responsible investment market which is worth more than US$21 trillion. The numbers are staggering but they simply show that financial capital providers are increasingly drawing the link between strategy and sustainability.

Bursa's efforts have essentially placed sustainability reporting today as a strategic response that not only supports disclosure but also a key process that reviews non-financial risks and opportunities. For some perspective on sustainability reporting, as little as 10 years ago, corporations rarely made direct statements about human rights and health and safety. Early iterations were sometimes mere glossy communications tools. According to the Global Reporting Initiative (GRI), there are close to 8,500 reporters of sustainability performance today, from around 25 a decade ago. The rate of uptake is indicative of the changing landscape of business and the necessary stakeholder engagement that ensues.

When done right, sustainability reporting helps align EES risks and stakeholders' interests which then complements non-financial performance with the financial. When there are clear targets and year-on-year tracking with analysis of failures and success, a culture of transparency is fostered. The increased transparency in turn builds long-term trust and credibility.

Ultimately, regulatory push is needed to build a new ecosystem and equip companies with the necessary tools to face the changing context of business. Information and disclosure alone, however, does not lead to change. Scandal-ridden Volkswagen was a star on the Dow Jones Sustainability Index and some years ago, Enron was the beacon of corporate disclosure. The decision-making process must be accompanied by vision and the necessary goals for a desired future. The change towards a sustainable economy, one that involves transformational linkages between financial and non-financial matrices, must involve focus and leadership alignment.

In short, the real change and innovation can only occur if companies step forward and carry the sustainability torch lit by the regulators.

CR Talk - Let’s talk in circles

By Dr. Jayanthi Desan for The Sun Daily

SEVERAL years ago, in a hushed conference room in Geneva, I spent several days with a number of academics and corporates, embroiled in long discussions on how CR should not be reduced into linear categories. In our current economic system, we extract resources like water and energy and make products that are largely disposed of at the end of their life or after use. This broader thinking on production impacts understanding on CR which continues to be bounded by misunderstood institutional roots, political limitations and legal parameters.

Such ideas have now become known as the circular economy. The circular economy is a notion that argues for a "restorative economic model", one where production works within resource boundaries. A circular economy is also waste-free and resilient by design. So, production must account for social and ecological impact, or what is called "closed loop".

Simply put, businesses are judged on linear measurements – sales and profits as well as year on year growth projections. Supply chains are time-bound, with quick turnarounds to satisfy insatiable consumption demands – all working in a linear process. The results are depletion of resources and a culture of perpetual waste.

So, how do we move towards this notion of circularity?

One of my favourite writers of fiction is Haruki Murakami. The world he builds is a dreamy one, full of talking cats, dead girlfriends and endless, rainy days.

He says this: "It's all a question of imagination. Our responsibility begins with the power to imagine. It's just as Yeats said, in dreams begin responsibility. Turn this on its head and you could say that where there is no power to imagine, no responsibility can arise".

So, with some imagination, businesses can make the transition from the traditional linear model of production and consumption to a circular model, based on reusing resources and regeneration in production.

Some examples of interesting companies in this area are Steelcase, the furniture maker and Desso a Dutch carpet and artificial turf company.

Steelcase's Thinkchair is 98% recyclable by weight, contains 38% recycled content and can be disassembled in five minutes. The chair can be recycled over and over again. Steelcase has re-imagined the office chair.

Desso, the carpet company, shows new thinking in redesigned carpet tiles which can be disassembled with yarn that can be reprocessed to continue upcycling the materials.

It has also developed a bio-degradable base made out of corn by-products and is experimenting with yarn from bamboo, which allow used carpets to be safely returned to the food-farming system.

Some other examples are companies building laptops made of plastic from old laptops, making aluminium car body parts made from old cars and producing flushable or compostable diaper lining.

These are interesting developments but it must also be remembered that the linear economy can be traced right back to the Industrial Revolution and largely continues to inform current business practices.

During the Industrial Revolution, the factory employing hundreds of workers became representative of the corporation at large. In part, this was a reflection of the power of the new industrial processes that reshaped age-old relationships. The factory owner had the privilege of the "old lord of the manor but none of the responsibilities". Labour was seen as a replaceable cash nexus. Major issues of responsibility and morality became acute.

The famous Marxist, Friedrich Engels observed: "One day I walked with one of those middle-class gentlemen into Manchester. I spoke to him about the disgraceful unhealthy slums and drew his attention to the disgusting condition of that part of the town in which the factory lived.

"I declared that I had never seen so badly built a town in my life. He listened patiently and at the corner of the street at which we parted company, he remarked: 'and yet there is a great deal of money made here. Good morning, sir!' "

Such ideas of profit at all costs has not changed much, except where legislation has intervened subsequently.

We are confronted with a variety of similar situations, with nothing illustrating the linear economy in a more dramatic way than the new round of haze-filled days that cloak us here in Malaysia and across Southeast Asia.

At the end of the day, no business operates in a vacuum, every decision and action is influenced by a wide range of forces, both internal and external to the business. Successful business leaders enable their organisations to harness the forces that will enhance performance, while optimising their response to performance limiting forces. The circular economy energises businesses with new possibilities and markets.

The question is how do we re-design business to be circular? It is not so much a fundamental redesign of business and end-to-end overhaul of value chains as a rethinking of the overproduction and overconsumption culture. It goes back to the core of a business and integrates the notion of profits with purpose.

For companies that operate efficiently around a critical resource such as water or energy, market forces are happy to ply the necessary rewards.

There are different ways to be circular: companies like Uber are thriving on the sharing and collaborative culture, in which consumers choose access over ownership. As sharing is becoming acceptable in new ways, we are realising that young people want a car for mobility and not so much as a status symbol.

Similarly, Airbnb is opening up the market for holiday accommodation without the need to build new hotels.

Other examples of being circular are Coca-cola, which has managed to reduce the amount of water used per litre of product by 24% in 10 years.

There are also exciting new start-ups working around the notion of circular like Waste Ventures in San Francisco, which is working on profiting from waste, to Evocative in New York which grows packaging materials from mushrooms.