9 September 2012

Johannesburg August 2013

Ethical Leadership & Responsible Business

Doing “good” to do well - the value of values

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Why look at ethics?

Global business landscape Post-financial crisis Anti-bribery initiatives Strategic importance of sustainability issues

Spotlight on corporate conduct from wider society Increased regulation Reputational risks/ brand Employee engagement /trust

Particular role of accountants / finance professional Operate to a code Financial and non-financial information analysis

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Key findings

Majority of organisations have codes and supporting initiatives

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Key findings

An average of 80% have a code of ethics globally – and this is reflected in different markets

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Key findings

Pressures vary across markets, perhaps reflecting challenges in external operating environment

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Key findings

One third of respondents may feel under pressure from colleagues or managers to compromise their organisations’ standards

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Key findings For management accountants there may be specific

pressure points

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Key findings Working with colleagues from different functional areas

within the organisation – by market

Also see: Fact or fiction – the independent business partner www.cimaglobal.com/businesspartner

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Who has responsibility?

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What tone at your top?

The Irresponsible Leader: more common SMEs, without regulatory scrutiny. Oblivious or hostile to “integrity” and focused on short term

The Superficial Leader: good at “talking the talk”, proficient at “brand” and marketing. No embedding of practice and can appear in all sizes of organisations.

The Responsible Leader: “walks the talk”, develops ethical culture and corporate responsibility by providing resource to build integrity and balances incentive with discipline.

The Enlightened Leader: Above and beyond. Strategically understands value add and connects dots between culture, products and services. Looking at long term business success.

Andrea Bonime-Blanc, CEO GEC Risk Advisory: Ethical Corporation June 2013

Andrea Bonime-Blanc, CEO GEC Risk Advisory: Ethical Corporation June 2013

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So what? Trust and Brand: The Value of Values Edelman trust barometer 2013 showed “Crisis of Leadership” less

than 50% in credibility stakes. Trust is no longer in company’s hands* – can’t bury bad news Social media, consumer reviews, friends & family, media – all

sources for trust Consumers in emerging markets 4x as likely to turn to social

media than in developed markets (22%:5%) Brands co-owned by many stakeholders. Priority to cultivate honest & collaborative relationships with

consumers and wider society

* Re:thinking consumption: BBMG, GlobeScan and SustainAbility report 2013

BBMG, GlobeScan & SustainAbility Study 2013

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CGMA reputation risk survey – Aug 2013

Three quarters (76%) of global financial leaders said their company was prepared to lose profit in the short term for the sake of protecting its long-term reputation (Africa: 82%)

The same number (76%) place more focus on reputational risk today than in previous years (UK 79%)

Almost half (44%) had rejected a project that made financial sense because the reputational risk was too great (Africa: 52%)

Nearly 1 in 4 (22%) organisations had experienced a reputational failure (Africa: 25%)

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CGMA reputational risk survey – Aug 2013

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Dare to disagree

"Openness wont help until we develop the skills and the talent and the moral courage to use it. Openness isn't the end. It's the beginning.”

Margaret Heffernan, author of Wilful Blindness

“Leaders have lots of training in how to speak – but how much training in how to listen”

Communication is two ways:

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“If ... You can't be a good example, then you'll just have to be

a horrible warning.”

When individuals act with out the long term view and ethical failures

come to light the result is a loss of public trust, brand damage,

impact on market value, and, often increase in regulations.

Ethical pitfalls

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Embedding ethics: feedback from South Africa “under pressure” focus group

Live your values

Communicate, communicate, communicate Set the tone

Connect with regulatory bodies and the law

Helplines

Confidence and Assurance

Staff training

Picture credits: gmarcelo, nyealumniadvisor, UggBoy, parylo00, freeimages.co.uk, Strelka Institute photo

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How can the external environment be influenced?

Leverage reputation

Networks and information sources

Level playing field

Picture credits: Ethisphere, gerard79, danxoneil

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Changing worldGlobal challenges:

Recession, resource scarcity, poverty, corruption, livelihoods, education, health, conflict, globalisation......

Does your company have a “licence to operate”?

“Businesses have to change – to get off the treadmill of quarterly reporting and operate for the long-term. [They] have to recognise that the needs for citizens and communities carry the same weight as the demands of shareholders.” Paul Polman, CEO Unilever

http://wn.com/Unilever_Value_Chain

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Key Questions... does your leader?

Value the establishment, functioning and importance of governance structures

Take advice and feedback from these structuresSeek honest feedback from colleagues in an

environment where staff feel comfortable challengingRespond positively to questioning from their teamCommunicate the organisation’s values clearly and take

appropriate action against those who breachEnsure there are appropriate feedback mechanismsLead by example.....to do as you do, not as you say!

Oates & Dalmau – ASA journal, July 2013

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Key findings –Ranking of business issuesManaging Responsible Business:

CGMA 2012

Currently how relevant are the following ethical issues to your organisation? (ranking in brackets)

CGMA 2011/12

CIMA 2008

Security of information 91% 93% (1)

Safety and security 88% 81% (2)

Bribery 78% 75% (6)

Discrimination 75% 81% (2)

Conflicts of interest 74% 76% (5)

Environmental 73% 77% (4)

Supply chain 72% 69% (7)

Human rights 64% 55% (12)

Responsible marketing 64% 63% (9)

Whistle-blowing 63% 62% (10)

Fairness of remuneration 55% 65% (8)

Work/life balance 53% 59% (11)

South Africa

Base: Important and very important

Security of information 88%

Safety and security 82%

Bribery 80%

Supply Chain & Conflicts of interest 77%

Discrimination 74%

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Key findings

Less than 20% of respondents are directly collecting or reporting

Overall it is just over a third of organisations who do this and it is most likely to be larger organisations

Figure 4: Does your organisation publicly report on ethical performance/corporate social responsibility (CSR)?

Figure 5: Does your organisation collect management information on ethics?

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Key findingsCGMA Rebooting business: Valuing the human dimension

280 CEOs in 21 countries:

Challenge in understanding value

Clear imperative to “go way beyond the financials”

Need people equipped for this task and to develop tools

Need for improvement in measuring non-financial value

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The future of corporate reportingKPMG February 2013

“As the global economy continues to reform its financial system, one crucial element of reconstruction is being ignored. The corporate reporting model in its current form does not meet the needs of investors – and it’s becoming increasingly difficult for the model to meet the requirements of preparers, auditors, regulators and standard-setters. Now is the time to begin a wide-ranging debate about what is wrong with the current model and how to change it.”

The future of corporate reporting: towards a common vision

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International Integrated Reporting Council Financial

Manufactured

Human capital

Intellectual capital

Natural capital

Social and relationship capital

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1998: Shell popularly recognised as first major company to publish a Corporate Social Responsibility report. This was recognised as a response to Brent Spar in the UK and Ken Saro-Wiwa in the Niger Delta controversies

A defining moment in push towards corporate transparency and accountability......

Profits and principles: Does there have to be a choice

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Post-2015 UN Development GoalsBusiness input

Private sector increasingly seen as having a role in sustainable development

Increased number scope and depth of private-public NGO partnership

Post 2015 development agenda – private sector much more engagement

Businesses operating in developing countries should use their influence to strengthen national government systems, rather than bypassing them - strengthening global economy at national levels

Photo credits: UNGC

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Finance’s role?Business input

They support sustainable decision making:

Source: Improving decision making in organisations (CIMA)

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Does being ethical pay?Selection of 110 Most Ethical Companies

Rated on: Corporate Citizenship and Responsibility; Corporate Governance; Innovation that Contributes to the Public Well Being; Industry leadership; Executive Leadership and Tone from the Top; Legal, Regulatory and Reputation Track Record; and Internal Systems and Ethics/ Compliance Program

Source: http://ethisphere.com/2011-worlds-most-ethical-companies/

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Does being ethical pay?5 year performance

Source: Governance & Accountability Institute, visit the website and download the report 2012 Corporate ESG / Sustainability / Responsibility Reporting – Does it Matter? at www.GA-Institute.com, get in touch at info@ga-institute.com

S&P 500 Reporters VS Fortune 500 Reporters VS S&P 500 Equal Weighted Index (S&P 500 EWI)

Whilst there is not yet hard evidence that sustainability reporting is a cause for increased stock market return - this chart shows a potential link between sustainability reporting and stock market return.

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2011 study HBS/LBSImpact of culture of sustainability on corporate behaviour and performance

Compared 90 - “High Sustainability” organisations that have adopted a

substantial number of environmental and social policies since the early to mid-1990s with

“Low Sustainability” companies that have adopted almost none of those policies.

Financial performance of the two groups is tracked for an 18-year period through the end of 2010

“Companies which have voluntarily embraced a sustainable business culture over many years “significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance.”

The Impact of a Corporate Culture of Sustainability on Corporate Behaviour and Performance – Eccles, Ioannou, Serafeim

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9 September 2012

www.cgma.org/ethicswww.cimaglobal.com/ethics

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