Assessing business performance<\/p>\n
David J. Finneren, Jakarta<\/p>\n
Recent media reports on corporate corruption, fraud, poor
\ngovernance, and environmental and social mismanagement have
\neroded much of the faith held in companies by a broad range of
\nconstituent parties. Society wants to better understand what
\ncompanies are doing -- how they are improving or damaging lives
\nand the environment -- what they are doing to ensure resource use
\nand business operations are set-up for the long haul.<\/p>\n
In today's business climate, where companies compete globally
\nfor customers and talent, where reputation is as important as
\nfinancial outcome, and where social and environmental risks have
\nbecome key business dynamics, companies are increasingly being
\ncalled to account (both boards and management by implication) --
\nby a diverse gallery of stakeholders -- across a wide spectrum of
\ntheir activities and operations.<\/p>\n
The first National Corporate Sustainability Reporting Awards
\nwere launched in Jakarta in late June in coincidence with the
\nfirst Sustainable Performance Conference.<\/p>\n
In order to demonstrate a true commitment to corporate
\nresponsibility, firms need to re-examine their policies,
\npractices and presentation. Companies can no longer afford to
\noutsource their conscience to a corporate foundation or the
\ncommunity development department.<\/p>\n
Business is beginning to recognize that a responsible and
\nintegrated sustainability strategy is required to ensure that all
\nline departments effectively manage social and environmental
\nissues and impacts in the company. In fact, corporate
\nsustainability is being seen as a core part of the overall
\nbusiness \"raison d'etre\" and a direct responsibility of the Board
\nthat needs to be managed accordingly.<\/p>\n
Corporate reporting is evolving as a part of a broader system
\nof business accountability and organizational management. As a
\npractice, reporting is progressing with varying degrees of
\nqualitative and quantifiable language attracting the attention of
\nbusiness owners, mainstream investors, capital markets, and many
\nothers.<\/p>\n
Various parties are using reporting outputs to benchmark,
\nassess and survey corporate performance, rating and ranking as
\nwell as to improve business practices and make investment
\ndecisions. This is creating momentum to elevate the quality of
\nreporting guidance, frameworks and tools to a higher level of
\nrobust and precise communication.<\/p>\n
The primary reason that a company publishes a sustainability
\nreport is due to a combination of self-enlightment and self-
\ninterest. It is not an altruistic gesture. A company publishes a
\nsustainability report because its directors believe it will
\nbenefit the business.<\/p>\n
The business case for sustainability reporting is therefore
\nremarkably simple: The process and product bring internal and
\nexternal benefits that exceed actual or perceived costs. Although
\na definitive cost\/benefit analysis on sustainability reporting
\nhas not yet been produced, the steady acceleration and uptake in
\nthe activity indicates that companies believe expanded disclosure
\nis a rewarding exercise.<\/p>\n
A comprehensive report by Linstock and Imagination during 2004
\ninvolved over 1000 publicly-listed enterprises and revealed that
\ncompanies using generally-accepted reporting guidelines (i.e.
\nGRI) to report on non-financial performance experienced lower
\nshare price volatility and significantly higher operating profit
\nmargins. The report also attributed the results to the presence
\nof good management teams and noted a somewhat slower rate in
\ncomparative revenue growth.<\/p>\n
A 2005 Corporate Responsibility survey by KPMG confirms that
\n52 percent of the top Fortune 250 companies now report
\nspecifically on sustainability practices for a number of
\ncommercial reasons; to protect brand image and reputation, to
\nmaintain strong market position, to increase shareholder value,
\nto insure the trust of the financial community, to be an
\nemployer-of-choice and to be innovative in creating new products,
\nservices and markets.<\/p>\n
Each company, depending on its specific market circumstances,
\nvalues a variety of business benefits from sustainability
\nreporting. A company that process tons of raw materials might
\nvalue the reporting process for the internal materials
\ninefficiency it helps identify. A company that depends on brand
\nreputation for continued success might value sustainability
\nreporting for its ability to position and convey the company
\ncommitment to ethical principles and community care.<\/p>\n
While there are numerous benefits to cite, almost without
\nfail, companies point to the internal benefits of sustainability
\nreporting as far outweighing those reaped externally. They do not
\nbelittle the benefits of strengthening dialogue and trust with
\nstakeholders or attracting additional socially responsible and
\nmainstream investors, they just see the internal effects as
\nfundamental improvements to their basic business foundations.<\/p>\n
Sustainability reporting requires a concerted effort to arrive
\nat broadly accepted strategies, objectives and action plans. The
\nreporting process links typically discreet and insular corporate
\nfunctions -- finance, marketing, R&D, human resources -- into a
\nmore integrated strategic vision and operation, opening new
\nconversations that pave the way for discovery and innovation.<\/p>\n
The strategic impact of a commitment to measuring, reporting
\nand continuous improvement can influence product design and
\nmanufacturing processes in the early stages. Setting performance
\ntargets and making commitments in a sustainability report can
\nradically alter corporate execution and operational results.<\/p>\n
A key purpose of reporting is to track progress and shed light
\non areas needing improvement. When a corporation publicly reports
\nits performance, there is a marked impact on the inside. By
\nexposing the company to public scrutiny, employees and management
\nbecome motivated to take action to insure the numbers improve in
\nthe next report.<\/p>\n
The reporting process also provides a warning for trouble
\nspots -- and unanticipated opportunities -- in supply chains, in
\ncommunities, among regulators, and in reputation and brand
\nmanagement. These discoveries can help management evaluate
\npotentially damaging developments before they emerge as unwelcome
\nsurprises.<\/p>\n
In today's business climate, the smart companies are those
\nthat identify their operational, social and environmental risks
\nand put plans in place to deal with them.<\/p>\n
The corporate sector in Indonesia is no exception in rising to
\nthe challenge of more sustainable business practices.<\/p>\n
Heeding a recent 2004 analysis of corporate governance impact
\nacross the Asia Pacific capital markets by CLSA and the Asia
\nCorporate Governance Association, astute local business leaders
\nnow realize that the top quartile of JSX firms possessing good
\ngovernance ratings enjoyed an average share price out-performance
\nof over 200 percent.<\/p>\n
It is a clear indication that implementing and reporting on
\nmore accountable operational practices in Indonesia is rewarded
\nby the investment community and delivers major financial
\nbenefits.<\/p>\n
The writer focuses on corporate sustainability initiatives
\nthat impact corporate and national competitiveness, productivity
\n& profitability. He can be reached at finnindo@cbn.net.id<\/p>",
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