A Better way of Looking at Compliance
April 10 2006 by Samuel A. Dipiazza Jr. And Travis Engen
The crisis of trust in business is impossible to ignore. Corporate scandals have provoked public and shareholder protest, and sparked legislators to pass laws such as Sarbanes-Oxley. Yet even with these safeguards in place, does anyone trust business to do the right thing? Do efforts to offer more reporting on social responsibility and sustainable development convince skeptics that the business world’s heart is in the right place? Probably not. We think the debate boils down to a question of trust and accountability: To whom ought business be accountable and for what?
The World Business Council for Sustainable Development (www.wbcsd.org), a coalition of 175 companies, undertook a two-year project led by Alcan and PricewaterhouseCoopers to understand how businesses can better frame, discharge and report on their “accountabilities.” The report’s title provides part of the answer: “Beyond Reporting.”
What the business council’s inquiry found was that many managers aren’t reaping the full benefits of all the reporting activity within their companies. Instead, they simply chalk up expanded reporting requirements as the cost of doing business, post-Enron. This attitude, in our view, leaves significant value on the table. With some creativity and a shift in mind-set, managers can leverage the new accountability to create value for their companies.
Our work suggests that this “new accountability” can help businesses integrate sustainability into core business processes, and thereby create and protect shareholder value. As one member company puts it, this is about “license to grow.”
To derive real commercial value from a more accountable way of doing business, companies should:
- Understand what drives value in the business. Companies need to tailor their accountability and sustainability efforts to their business. PricewaterhouseCoopers, wholly dependent on people to deliver its services, focuses its accountability and sustainability efforts largely on attracting, developing and retaining the best people, and matching them to the needs of the marketplace.
- Tell your people what accountability means for the company. The concept of broader accountability should be clearly communicated, and managers must be given specific guidelines. Dow Chemical, for example, uses its Corporate People Strategy to establish expectations and priorities for the company.
- Recognize that different people are accountable for different things. Accountability is multidimensional. Companies should help employees understand how they connect with their colleagues and when they should collaborate.
- Build on the compliance effort. For many companies, corporate governance is solely a compliance issue. But in our view, governance should be seen as a framework to unite and integrate business functions. For example, Alcan views Sarbanes-Oxley as a risk management tool aligned with the company’s existing business practices
Mounting evidence indicates the benefits of getting accountability right. Analysis by research firms such as Innovest indicates that companies that understand their responsibility to society achieve better shareholder returns. Deutsche Bank London has found a “strong and positive link between corporate governance and share price performance.”
Finding value in accountability demands a shift in thinking-and incisive, focused communication. But with sufficient effort, the links between accountability, opportunity and value will be understood and embraced both within the organization and in the marketplace.