Entec Bulletin
A Reserve Game of Two Halves
What have one of the world’s largest oil companies
and a football commentator got in common?
Costly lapses in their approaches
to social / corporate responsibility.
Both Shell and Ron Atkinson have recently paid the price for their mistakes.
Shell, a company with a reputation for taking the long view and a co-operative management style, saw its value reduced by over $15 billion (or more than 7%) earlier this year when it revealed that its oil and gas reserves had been overstated by 20%. After a reshuffle and a couple of senior resignations the value rose by 2%. The company has since stepped up its review of corporate governance.
Ron Atkinson, a football commentator and former manager with a reputation for improving the status of black players, famously made a comment about a black player which left him open to various accusations, costing him his job at ITV and his Guardian column.
Setting aside the rights and wrongs of these examples, they can give us pause for thought. Are there forces at play within our own businesses which if unchecked, could lead to considerable financial and reputational risks? And if so, would a more structured approach to CSR reduce the likelihood of such risks materialising?
So it's worth thinking about how some of these problems might affect our own business and moving on from there. And as a result, more of us will hopefully realise that our commitment to CSR has to be genuine (something we believe in), meaningful (something we do something about) and vigilant (something that is a central part of what we do day-to-day). Of course, there are lots of good examples of responsible practices in business (such as those that Entec's Business in the Community study mentioned on page 3 points to), and even small steps have value. But what could accelerate the change?
Perhaps the forthcoming proposals for the operating and financial review (OFR) as part of the Company Law Review (CLR) will help accelerate the pace of change, and encourage organisations to put in place a formal structured way of approaching the process.
The CLR hasn't gone as far as making stakeholders the focus of company activity. The focus will still firmly be on shareholders, but the needs of stakeholders are addressed. The CLR will contain a statutory requirement for a statement of directors’ duties to encourage them to take account of long term consequences, recognise the importance of stakeholder relationships to their success, maintain high standards of business conduct and address impacts on community and environment.
According
to the OFR Working Group the purpose of the OFR is to “enhance
public confidence in
the framework within which wealth creation takes place in our society”.
The OFR is intended to allow stakeholders to assess a company’s strategy
and its ability to achieve it. Stakeholders can then take a view of the value
and quality of the company and its operations.
The OFR does provide a structured
opportunity for companies to genuinely address CSR and move towards sustainability.
If it is approached in this manner then
maybe some good things will emerge, and maybe there will be a stronger connection
between what companies say they’re doing and what they’re actually
doing. If not, events contributing to the cynicism many feel about companies’ motives
on social responsibility, and their contribution to sustainability, will
continue unabated. And then we're back to square one, Ron.
Click here to load the Entec home page