BUSINESS SUSTAINABILITY
through the pursuit of
Ethics, Governance and Excellence
DR SORAB SADRI
JECRC UNIVERSITY
JAIPUR
Founding Argument
• On the basis of research carried out between 2001 and 2013
the following positions were taken:
• 1. Ma...
Development Agenda
• 3. If Corporate Governance has to be an instrument for
inclusive developmental growth it has to be fo...
Future Goals
• 5. Sound ethics and good governance help to create a work
culture that promotes an environment of trust tea...
The Logical Culmination
• We have argued that Business Ethics and Corporate
Governance combine to create the conditions fo...
Basis
• This presentation is based on the following research based
published works wherein the above argument was
propound...
SOME ISSUES TO CONSIDER
1. What is sustainability?
2. Is sustainability compatible with maximizing long-run financial
perf...
DEFINING SUSTAINABILITY
• One of the most often-cited definitions of sustainability is
the one created by the Brundtland C...
The Scope Of Sustainability
• Sustainability relates to the continuity of economic,
social, institutional and environmenta...
WHY SUSTAINABILITY?
• Organizational Excellence is definitely a goal to be desired
but it is not a finite point; rather it...
Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
Ethics Governance
Excellence
THE ORGANIZA...
BASIS OF THE TRIAD
• The three aspects of sustainability are inextricably founded
on sound business ethics and good corpor...
Why Sustainability
“We do not inherit the earth from our ancestors.
We borrow it from our children.”
Sustainable developme...
Need for Sustainability
We desperately need to recognize that we are the guests not the
masters of nature and adopt a new ...
Questions about Sustainability
1. What is sustainability?
2. Is the goal of sustainability compatible with maximizing
long...
Sustainability and Performance
Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
Is sustain...
The case of Nike
Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
Can one suggest that Nik...
Is sustainability compatible with maximizing
long-run financial performance?
Invited Expert Lecture at the Annual Day Cele...
Compatiblity of sustainability with
maximizing long-run financial performance
Invited Expert Lecture at the Annual Day Cel...
Corporate Finance
“Success is usually judged by value: Shareholders are
made better off by any decision which increases th...
Economics
Most Positive Economists will agree that
When we model the behavior of firms, we will want to
describe the objec...
Corporate Mission
Statements
“Do a great job for our customers, employees, and stockholders by
being the preeminent buildi...
Corporate Mission Statements That
Recognize Stakeholder Interests
We will become the world's most valued company to patien...
Corporate Mission
Statements
“Nike’s corporate responsibility (CR) mission is simple and
straightforward. It is clear ackn...
Motivation for Adopting
Sustainable Practices [ PwC
2002 Survey]
Source: PriceWaterhouseCoopers,2002 Sustainability Report...
Accounting: The Spinal Column of Corporate
Governance
The search for new and better means of meeting
economic problems has...
Accounting
“Accounting reports serve a great number of purposes … . For
example, there are accounting reports that serve t...
Accounting
Financial reporting should provide information that is
useful to present and potential investors and creditors....
Stewardship
• A working definition: the responsibility for
taking good care of resources entrusted to one.
• However much ...
Reporting Tools Of Sustainability
• Given that top management is increasingly
concerned with converting organizational
exc...
1. The Triple Bottom Line
• Disclosure (reporting) is a key part of doing sustainable
business.
• Sustainability reporting...
First Element of the
Triple Bottom Line
Economy – reflects activities related to shaping
demand for products and services,...
Second Element of the
Triple Bottom Line
Society - reflects activities in shaping local, national
and international public...
Third Element of the
Triple Bottom Line
Environment – reflects the impact made through processes, products
or services tha...
2. The Balanced Scorecard
• A performance measurement tool and a performance
management system.
• Created in 1992 by Rober...
Components Of The Balanced Scorecard
• Four components of the balanced scorecard:
The Learning and Growth Perspective
The ...
3. The Balanced Scorecard
• The Sustainability Balanced Scorecard adds sustainability
issues into the Balanced Scorecard.
...
THIRD PARTY REPORTING AND
CRITERIA ON SUSTAINABILITY
• Reporting on sustainability is not synonymous with
engaging in acti...
Global Reporting Initiative
• The Global Reporting Initiative (GRI) has emerged as a
prominent source of guidance for repo...
International Organization for
Standardization
• Organization de Standards International (ISO) is an
important management ...
Motivation to Report on Sustainability
• Sustainability reporting is largely voluntary
Exceptions: France and Japan
• Moti...
Sustainability and TBL Concepts
• Because sustainability reporting is largely voluntary,
the attitudes of business leaders...
CONCLUSION
• Business Ethics and Corporate Governance
combine to create conditions for Organizational
Excellence.
• Organi...
• Thank you very much for your time
and patience.
• Good evening.
Invited Expert Lecture at the Annual Day Celebrations of...
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Lecture at bosch on 23.04.2014

  1. 1. BUSINESS SUSTAINABILITY through the pursuit of Ethics, Governance and Excellence DR SORAB SADRI JECRC UNIVERSITY JAIPUR
  2. 2. Founding Argument • On the basis of research carried out between 2001 and 2013 the following positions were taken: • 1. Managerial Ethics without Good Governance becomes wishful thinking and sermonizing. • Corporate Governance without ethics becomes ritualistic and compliance driven. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  3. 3. Development Agenda • 3. If Corporate Governance has to be an instrument for inclusive developmental growth it has to be founded on ethics. This makes the exercise both value based and value driven : i.e. value centered. • 4. Hence the relationship between ethics and governance is mutual and symbiotic. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  4. 4. Future Goals • 5. Sound ethics and good governance help to create a work culture that promotes an environment of trust teamwork and transparency. • 6. This work culture allows creativity and innovation to thrive. • 7. In so doing the organization moves towards excellence. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  5. 5. The Logical Culmination • We have argued that Business Ethics and Corporate Governance combine to create the conditions for Organizational Excellence. • Organizational Excellence is not a finite point but more like a horizon we move towards. • To make this horizon meaningful and measurable we argue that it converts Organizational Excellence into Business Sustainability Invited Expert Lecture at the Annual Day
  6. 6. Basis • This presentation is based on the following research based published works wherein the above argument was propounded and explained: • Sadri, Jayashree and Ajgaonkar (2002) • Jayashree, Sadri and Dastoor (2008) • Sadri and Jayashree (2011) • Sadri and Jayashree (2014) Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  7. 7. SOME ISSUES TO CONSIDER 1. What is sustainability? 2. Is sustainability compatible with maximizing long-run financial performance? 3. Corporate strategies and multiple long-run objectives. 4. The balanced scorecard and multiple long-run objectives. 5. The relationship between reporting on sustainability and investing in sustainability? Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  8. 8. DEFINING SUSTAINABILITY • One of the most often-cited definitions of sustainability is the one created by the Brundtland Commission, led by the former Norwegian Prime Minister Gro Harlem Brundtland. The Commission defined sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  9. 9. The Scope Of Sustainability • Sustainability relates to the continuity of economic, social, institutional and environmental aspects of human society, as well as the non-human environment. • Sustainability can be defined both qualitatively in words, and quantitatively as a pair of compound exponentials—the rising one being the life of a system, the declining one leading to death if the final tipping point for intervention is irreversibly past. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  10. 10. WHY SUSTAINABILITY? • Organizational Excellence is definitely a goal to be desired but it is not a finite point; rather it is like a horizon you move towards. • This movement is within an environment that is marked by dynamic dis-equilibria and an attendant uncertainty. • So it is prudent to use excellence such that business remains sustainable. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  11. 11. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14 Ethics Governance Excellence THE ORGANIZATIONAL TRIAD
  12. 12. BASIS OF THE TRIAD • The three aspects of sustainability are inextricably founded on sound business ethics and good corporate governance that combine companies to pursue excellence. • This is enabled by a corporate culture that promotes creativity and innovation by adopting a learning environment. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  13. 13. Why Sustainability “We do not inherit the earth from our ancestors. We borrow it from our children.” Sustainable development “meets the needs of the present without compromising the ability of future generations to meet their own needs.” - 1987, World Commission on Environment and Development (a.k.a the Brundtland Commission) Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  14. 14. Need for Sustainability We desperately need to recognize that we are the guests not the masters of nature and adopt a new paradigm for development, based on the costs and benefits to all people, and bound by the limits of nature herself rather than the limits of technology and consumerism. - Mikhail Gorbachev - President of Green Cross International Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  15. 15. Questions about Sustainability 1. What is sustainability? 2. Is the goal of sustainability compatible with maximizing long-run financial performance? 3. Can corporate strategies accommodate multiple long- run objectives? 4. Does the balanced scorecard accommodate multiple long-run objectives? 5. What is the relationship between reporting on sustainability and investing in sustainability? Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  16. 16. Sustainability and Performance Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14 Is sustainability compatible with maximizing long-run financial performance? The business case for sustainability investment is gaining momentum so as to avoid inertia The positive correlation between sustainability and financial performance will provide an enormous boost to the sustainable investment sector, said Markus Knisel, Director of Morgan Stanley Private Wealth Management.
  17. 17. The case of Nike Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14 Can one suggest that Nike would have benefited financially from requiring its suppliers to meet higher standards at the inception of its then- novel overseas manufacturing program in the 1960s. Insistence on adult workers (no children), safe working conditions, and reasonable hours and pay would have cost Nike real dollars and cents. [The Traditional – Paternalistic View]
  18. 18. Is sustainability compatible with maximizing long-run financial performance? Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14 “Prior to the 1990’s, when workers and consumers in industrialized countries awakened to the conditions of workers overseas, it would have been difficult to cite even minimal reputational benefits from such a stance.”
  19. 19. Compatiblity of sustainability with maximizing long-run financial performance Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14 “By the 1980s, Nike already had a glowing reputation and spectacular earnings. Far from being a cause for embarrassment, its strategy of outsourcing production to cheap Asian labor was praised as an innovative way to drive down costs, beat the competition, and create shareholder value.” - Lynn Sharp Paine, 2000 Harvard Business School
  20. 20. Corporate Finance “Success is usually judged by value: Shareholders are made better off by any decision which increases the value of their stake in the firm.” - Brealey and Myers, Principles of Corporate Finance (1988) Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  21. 21. Economics Most Positive Economists will agree that When we model the behavior of firms, we will want to describe the objective as profit maximization and the constraints as technological constraints and market constraints.” Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  22. 22. Corporate Mission Statements “Do a great job for our customers, employees, and stockholders by being the preeminent building block supplier to the worldwide digital economy.” - Intel Hence even CSR seems to be moving towards meeting stakeholders interests rather than remain at a “do social good level. Mohanty Sadri and Dange Invited Expert Lecture at the Annual Day
  23. 23. Corporate Mission Statements That Recognize Stakeholder Interests We will become the world's most valued company to patients, customers, colleagues, investors, business partners, and the communities where we work and live. - Pfizer GM’s vision is to be the world leader in transportation products and related services. We will earn our customers’enthusiasm through continuous improvement driven by the integrity, teamwork and innovation of GM people. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  24. 24. Corporate Mission Statements “Nike’s corporate responsibility (CR) mission is simple and straightforward. It is clear acknowledgement that CR work should not be separate from the business – but should instead be fully integrated into it. Our CR mission: We must help the company achieve profitable and sustainable growth. We must protect and enhance the brand and company.” - Nike Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  25. 25. Motivation for Adopting Sustainable Practices [ PwC 2002 Survey] Source: PriceWaterhouseCoopers,2002 Sustainability Report. August 2002.
  26. 26. Accounting: The Spinal Column of Corporate Governance The search for new and better means of meeting economic problems has resulted in the development of various kinds of institutions … aimed at improving the allocation of resources and the application of human effort toward the satisfaction of human wants. Accounting is one of these institutions. - William Vatter (1950) Hence the importance of Corporate Governance and its guardians [ CAs] will only increase with time. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  27. 27. Accounting “Accounting reports serve a great number of purposes … . For example, there are accounting reports that serve to tally valuables entrusted to custodians against the stewardship expected of them. … Thus, accounting is not necessarily confined to the situation of measuring gains and losses; it is basically a means of meeting the requirement that custody and management of property carries with it an obligation to account for it.” “ Of course, the accounting reports of business enterprises serve many other uses. The information presented in financial statements may be used by present or prospective investors … ..” - William Vatter (1950) Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  28. 28. Accounting Financial reporting should provide information that is useful to present and potential investors and creditors. … The primary focus of financial reporting is information about earnings and its components. FASB (Statement of Financial Accounting Concept #1) The Right to Information Act in India is thus a step in the right direction making public bodies accountable and transparent. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  29. 29. Stewardship • A working definition: the responsibility for taking good care of resources entrusted to one. • However much delegation of power is desired one must recall that: Delegation without accountability creates tyrants Accountability without delegation creates slaves Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  30. 30. Reporting Tools Of Sustainability • Given that top management is increasingly concerned with converting organizational excellence into business sustainability, how will the latter be measured? • The Triple Bottom Line • The Balanced Scorecard • Third Party reporting and criteria Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  31. 31. 1. The Triple Bottom Line • Disclosure (reporting) is a key part of doing sustainable business. • Sustainability reporting is broader in scope than traditional financial reporting. • The Triple Bottom Line (TBL) is one way to report on sustainable business activity. • TBL defines sustainability in terms of three separate elements: economic, environmental, and social perspectives of operations. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  32. 32. First Element of the Triple Bottom Line Economy – reflects activities related to shaping demand for products and services, employee compensation, community contributions, local procurement policies, and other monetary issues related to company activities. This is often referred to as Profit Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  33. 33. Second Element of the Triple Bottom Line Society - reflects activities in shaping local, national and international public policy, equality, treatment of minorities, employee issues and public concern. That is, organizational citizenship and is often referred to as People. Invited Expert Lecture at the Annual Day
  34. 34. Third Element of the Triple Bottom Line Environment – reflects the impact made through processes, products or services that affect the environment. These may include air, water, land, natural resources, flora, fauna and human health. This is often referred to as Planet Invited Expert Lecture at the Annual Day
  35. 35. 2. The Balanced Scorecard • A performance measurement tool and a performance management system. • Created in 1992 by Robert Kaplan and David Norton. • Emphasizes financial measurement, but adds non-financial measures. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  36. 36. Components Of The Balanced Scorecard • Four components of the balanced scorecard: The Learning and Growth Perspective The Internal Business Process Perspective The Customer Perspective The Financial Perspective • Each component would ideally have specific performance measures associated with it. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  37. 37. 3. The Balanced Scorecard • The Sustainability Balanced Scorecard adds sustainability issues into the Balanced Scorecard. • This gives business sustainability a rightful place within overall management strategy. • The adoption of this tool is increasing globally. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  38. 38. THIRD PARTY REPORTING AND CRITERIA ON SUSTAINABILITY • Reporting on sustainability is not synonymous with engaging in activities that promote sustainability. Neither is reporting on profitability synonymous with being profitable. • No “GAAP” for reporting on sustainability. • Guidelines have been issued by governmental entities and other groups. The Environmental Protection Agency (EPA) The Global Reporting Initiative (GRI) ISO 14000 • Independent reporting agencies have emerged. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  39. 39. Global Reporting Initiative • The Global Reporting Initiative (GRI) has emerged as a prominent source of guidance for reporting under the Triple Bottom Line. • The GRI is a collaborating center of the United Nations Environment Program. • The GRI incorporates participation of representatives from business, accountancy, investment, environmental, human rights, research and labor organizations from around the world. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  40. 40. International Organization for Standardization • Organization de Standards International (ISO) is an important management practice standard setting body. Founded in 1947 in Amsterdam. Sets a variety of standards for various products and production processes. A network of the national standards institutes from 148 countries. Conformance with ISO standards is a contractual requirement by some customers. • ISO 14000: provides a framework for measuring environmental performance. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  41. 41. Motivation to Report on Sustainability • Sustainability reporting is largely voluntary Exceptions: France and Japan • Motivations to disclose sustainability information The desire to avoid added complex and costly government regulation or negative attention from the government. • For example, GAO 2004 study The desire to improve public relations and company image. • For example, CalPERS Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  42. 42. Sustainability and TBL Concepts • Because sustainability reporting is largely voluntary, the attitudes of business leaders towards sustainability is important. • Such an attitude reflects a high sense of values and ethics on the one hand and good corporate governance practices on the other. • It is more likely to find a place in companies that pursue organizational excellence. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  43. 43. CONCLUSION • Business Ethics and Corporate Governance combine to create conditions for Organizational Excellence. • Organizational Excellence needs a value centered corporate culture for stability. • Excellence has to be translated into sustainability. • Three measures of sustainability are Triple Bottom Line, Balanced score Card and Third Party Reporting. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14
  44. 44. • Thank you very much for your time and patience. • Good evening. Invited Expert Lecture at the Annual Day Celebrations of IIMM in Jaipur 23.04.14

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