Tomorrow’s global company should expand its view of success and redefine it in terms of lasting positive impacts for business, society and the environment.
Having redefined success, tomorrow’s global business leaders should stand firmly behind their convictions and use them as a basis for their business strategy and decision making.
Internal processes, especially measurement and reporting and external communications with all stakeholders, need to be consistent with this view of success.
Measuring success
If success is redefined, it must also be measured and reported in new ways. Objectives and performance indicators need to reflect all aspects of strategy. Performance needs to be reported in a consistent manner, internally and externally. This will require investment in internal systems and courage in explaining strategy and results externally and to employees with the clarity that managers use inside the business.
One of the difficulties faced by companies seeking to create a broader definition of success is defining and quantifying reliable measures in non-traditional areas. An example is in relation to environmental responsibility, particularly whilst there are inadequate market mechanisms by which natural resources and pollution can be financially costed.
Some steps are being taken towards estimating the monetary value of natural resources and imposing costs on environmental impacts, emissions trading systems being one example. Financial markets are increasingly recognising the potential costs and benefits of environmental factors. But such systems or calculations remain largely limited or informal.
Tomorrow’s global companies, working with those who share similar concerns, should take a lead in developing ways of assessing, measuring and allocating the costs of environmental resources and impacts so that there are rewards for good stewardship and penalties for irresponsibility.
Company annual reports provide one mechanism through which companies can communicate their wider definition of success and win support.
A company’s annual report provides a permanent record of its activities and the social, economic and environmental benefits it can bring to the communities in which it operates. Tomorrow’s global companies should be exemplary in reporting broadly on their activities.
We believe that in too many cases, the division of reporting into ‘financial’ and ‘non-financial’ categories is misleading. Revenues, earnings, dividends, costs and other financial metrics are measurable financial outcomes of business activity, but so-called ‘non-financial’ factors such as poor employment conditions or pollution incidents can have a significant impact on a company, including on its financial results.
For companies to be able to pursue social and environmental objectives they need to not only develop specific goals and related indicators of performance but also report on them consistently. They need to provide all stakeholders with data and information of interest to them integrated with their financial results highlighting the contribution to their business strategy and financial performance.
To be credible, reporting on social and environmental issues has to be undertaken with equivalent rigour to conventional financial reporting and as part of an integrated framework.
Many companies are already acting on the basis of a wider definition of success. In Appendix 1, we provide examples of how companies are seeking to work in ways that unite business, social and environmental objectives.