Lecture at bosch on 23.04.2014

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. 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

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.

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.

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

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)

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?

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.

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.

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.

Ethics Governance
Excellence
THE ORGANIZATIONAL TRIAD

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.

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)

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

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?

Sustainability and Performance
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.

The case of Nike
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]

Is sustainability compatible with maximizing
long-run financial performance?
“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.”

Compatiblity of sustainability with
maximizing long-run financial performance
“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

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)

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.”

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
the Annual Day

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.

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

Motivation for Adopting
Sustainable Practices [ PwC
2002 Survey]
Source: PriceWaterhouseCoopers,2002 Sustainability Report. August 2002.

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.

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)

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.

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

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

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.

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

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.
the Annual Day

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
the Annual Day

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.

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.

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.

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.

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.

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.

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

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.

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.

• Thank you very much for your time
and patience.
• Good evening.

Lecture at bosch on 23.04.2014

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