Value and Corporate Governance
What is value? How do we measure it in the business world?
In financial terms, I hear you all say. But surely there's more to value than just money?
Let's think more broadly about value
How do parents value their children's achievements at school? How do they value their children's ability to make and keep friends? How do women value their safety as they walk home alone at night? How does a company value a staff member's ability to speak seven languages? How do hikers value the opportunity to walk pristine, rubbish-free trails in old growth forests? How do residents of towns near mines or chemical factories value high quality drinking water and clean air to breathe?
When you answered those questions, were you able to answer them in financial terms? No? But you'd agree that those are "value-able" things, wouldn't you?
Would you also agree that across segments of our society, and between societies, we might all see the value in the examples above...but we lack a common, shared language to articulate that value?
Value and Sustainable Development
Over the last decade or so, inspired (perhaps driven) by the principles of sustainable development, the world has managed to come together to agree on some fundamental aspirations - that it will be good to build peaceful, just and inclusive societies. To that end, through perhaps one of the greatest consultative processes in history, global leaders agreed on a set of 17 Sustainable Development Goals and announced these in September 2015.
What is Sustainable Development?
Here's perhaps the most effective definition of sustainable development, as it's stood the test of time:
"Sustainable development is development that meets the needs of the present, without compromising the ability of future generations to meet their own needs."
And what are the 17 Sustainable Development Goals (SDGs)?
The SDGs cut across those themes of peace, justice and inclusivity, and consider that development must be balanced across three dimensions, economic, social and environmental.
These goals encompass some 169 targets that the world has agreed we should reach by 2030.
Was business involved at all in deciding these goals, or is this just more government wish list stuff?
Not only business, but also civil society were deeply involved in the consultations. Since then, business has worked diligently to come up with a new approach to corporate governance that unlocks its ability to measurably contribute to the attainment of these goals. Fundamentally, the approach involves looking at the world, and their specific business, in a systemic, holistic and forward-looking way - considering "stocks" of capitals and "flows" between these stocks.
That means business is freed from looking only at Financial Capital (annual reports with reams of figures on financial performance) and can consider its own sustainability in terms of the sustainable flows between the stocks of capitals. One of the best visual representations of what that's saying is this circular representation of the capitals and how they inter-relate.
What's different about the Capitals-based approach and Integrated Reporting?
In essence, it creates a way to articulate value that isn't constrained only to report on financial value. Traditional company reporting by its very nature had to be backward-looking; it reports on that which has already happened.
Through Integrated Reporting, an organisation can communicate with its stakeholders on how it's succeeding at implementing its strategy to create value, in a forward looking way. And not just how the company is creating financial value for its shareholders. It creates a mechanism for the organisation to tell the story of how all of its resources are creating value for its stakeholders. Like employees, communities and the civil society organisations that often depend on them. Like the parents, women walking alone at night and hikers we thought about at the beginning of this post.
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@kiligirl, Yes, value just not developed from Monetary Developments. That's why we see that in this world every or most of the Corporate Companies are participating in the Humanitarian works or towards some kind of cause, that is because, inturn they are increasing their value and goodwill.
Wishing you an great day and stay blessed. 🙂
Thanks for your insights, @chireerocks :-). I'd be the first to say that some companies are quite cynical about how they "do" their Corporate Social Responsibility...often for them it's a question of reputation management rather than about fundamentally creating value for their stakeholders. But hey, it's better than doing nothing! So yes, I agree, they are increasing their value and goodwill.
You have a great day too and stay blessed as well.
Thank you so much for your response. Have a great time ahead. 🙂
Oh yes, these which emerged from the MDGs but which are much better thought through, I agree. I am, though, reminded of one of the key failings of the recent job summit - and I think it was Alan Winde, former Economic Development MEC in the Western Cape who pointed it out, and as has often been lamented, of the Skills Development System (and I know that legislation and all the policies backwards) - that small and micro businesses are often ignored, and werelargely absent from the job summit. Even though all the policies and legislation pay lipservice to them. Hell, Zuma even established a ministry for small business. To what end? To set it apart rather than to include it, is the result, I would argue.
So big corporates, like Unilever, and PHP, the big banks, can and do "re-engineer" and integrate their reporting, and many have been doing it for a years - in the guise of first, public affairs or relations, then corporate social "responsibility" which later became known as "investment" and now "sustainability" the the integrated reporting you mention (I was, in a past life, a fundraiser(!)). Small and micro businesses focus only on the bottom line. Having had a share in a small company that went to the wall, the costs involved in participating in these initiatives outweighed any real return - unless there were funds to invest and there was a guaranteed ROI. Often there isn't. And yes, sometimes it has to do with the leadership (or lack of it - ethical or otherwise), but often it is simply a matter of resources with a focus on the stakeholders closest to the entity: the customer, the employee and the owners/shareholders. Usually in that order.
These are such interesting and challenging issues. Thanks for stretching me to think about them - it's been a while :)