Social Enterprise Leadership – ancient wisdom needed!

Social Enterprise Leadership – ancient wisdom needed!

A social enterprise is an innovative business vehicle focussed upon creating sustainable wealth and at the same time being a great corporate citizenship, a focus upon people, plant and profits. The business is more complex and so it follows the governance and leadership most also be more sophisticated. Around 1760 the industrial revolution and industrial economy started in Europe and spread across the world. The focus was upon managing physical and financial capital for internal efficiency often with an internal win and external loose outlook. In the 1970’s the knowledge economy started with widespread computing and communications technology. The focus is on managing human capital.

Corporate governance creates wealth by setting a clear mission, vision, goal and strategy. The business operations may actually be simple yet setting goals across people, planet and profit makes the governance more complex and the operational leadership more challenging. Very simply the governance and leadership capability and style of the industrial economy or even the knowledge economy are unlikely to suit.

Dr Stephen B. Young of the Caux Round Table suggests that there are five types of capital to manage: physical, financial, human, social, and reputational capital. This is based upon far reaching research on best business practices and ethics across USA, Europe, Australasia and Japan. Therefore we have a hint that industrial economy and even knowledge economy management styles and capabilities are insufficient to manage all five core capitals, specifically social capital and reputational capital.

The Caux Round Table proposes that key governing principles for sustainable wealth creation must include the following two aspects: Living and working together for the common good, mutual prosperity, with healthy and fair competition; and Valuing human dignity and the sacredness of each person, be they employees, customers or stakeholders.

Although law, regulation and commercial market forces can go a long way towards ensuring these principles are adhered to, it is really determined by the mission, vision and values and conduct set by the Board of Directors. External forces can drive compliance. It is an internal Board choice, that determines the tone, spirit and behaviour.

Recently, Dr Deepak Chopra has been leading workshops on the Soul of Leadership, awakening us to the possibility that there are seven different types of leadership each more appropriate in different times and situations. In our new economy, where we must value all five types of capital, we require different leadership style then the aggressive and arrogant win-lose styles of the last 50 years.

Dr Jane Houston, is a guru on human potential and has been working with the United Nations to develop new leaders for our modern time. Her own mentor was Margaret Mead. She calls this style of leadership, social artistry. Social artistry is about ancient wisdom. Modern management seems to believe that there is nothing to learn from our ancient forefathers and fore mothers. Modern business and especially social enterprise shows that we can learn a great deal from our ancient lineage.

A group focussed upon developing human potential is the Society of Jesus, known as The Jesuits. They have over the centuries contributed to personal development and contribution to society, far larger than their small numbers.

Lets also, look at the history of commerce.  The first corporation limited by shares was the Dutch East India Company in 1602. Prior to that time the only expansive commercial vehicle was partnership law. The earliest body of limited liability partnership law suitable for trade is the Qirad in Islam. It is likely that the Qirad originated in the Arabian Peninsula with the Arabian caravan trade. It later became one of the most widespread tools of commercial activity. It was an arrangement between one or more investors and an agent where the investors entrusted capital to an agent who then traded with it in hopes of making profit. Both parties then received a previously settled portion of the profit, though the agent was not liable for any losses. From AD650 to AD1250, the Golden era of Islam the commercial world was largely driven by such trade partnerships, one of the key reasons why Islam spread across the world.

Partnership law was adopted in Italy in tenth century. Even today most accountants and lawyers use the partnership vehicle for business. This vehicle has also been updated in recent years to offer limited liability partnership business vehicles. The partnership vehicle is alive. The partnership has as owners the leaders and operational managers and expectant staff that one day they too may become partners. The partnership often has a paternalistic approach. Hence, just looking at 200 hundred years of industrial age contemporary management thinking ignores 1500 hundred years of ancient commercial wisdom.

We have a wealth of management knowledge on managing human capital, physical capital and financial capital.  Social enterprise leadership will therefore also need to draw upon more wisdom about managing social capital and reputational capital, which intrinsically is about people and the planet. The old administrations and government agencies based upon managing less than all five are like the dinosaurs under pressure of extinction.

Social enterprise and the governance and leadership of the five types of capital is one of the transformational trends of this period of time.

Paul A Zaman is the CEO of Qualvin Advisory, would you like to know how to create sustainable wealth and become a good corporate citizens  email: pzaman@qualvin.com or visit www.qualvin.com.

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Champions of the World!

Corporate Governance – Champion of the Earth

By Paul Ali Zaman

The Global business summit for the environment, “B4E” was held a couple of years ago in Singapore and recognition was given to the winning “Champions of the Earth”. One champion was Al Gore, for his work and some say crusade, for all of us to take action to prevent and reverse the effects of global warming.

Global warming is a very high profile topic and has steadily caught the attention, hearts and minds of many people. Al Gore’s movie – -An Inconvenient Truth, won two Academy Awards and he won a Champion of Earth award from the United Nations Environment Programme (UNEP).  The movie has helped create global warming awareness, however the issue of global warming gases such as carbon dioxide, methane and others is just one of many pressing environmental and governance issues. Others include, the scarcity of fresh drinking water, over-fishing of the oceans, destruction of bio-diversity due to the logging of rainforests; and avian bird flu; and electronic e-waste.

A key source of Global Warming is Carbon Dioxide gas from burning organic fuel. In broad terms 2/3 of the environmental carbon dioxide gas is created by the industry and 1/3 by agriculture and farming. In a little more detail it is the power generators and heavy power consuming industries that are the biggest culprits. Factories creating cement from line, bricks from clay, aluminum and steel from ores, all have large furnaces and are heavy fuel users. Internal combustion engines in cars, trucks, trains, ships and airplanes are also culprits. Carbon Dioxide is a global warming gas because it affects the atmosphere. The airline industry only contributes about 2 to 3% of Carbon Dioxide gasses and yet these millions of tones of gas are discharged at 30,000 feet. Carbon dioxide is heavier than Oxygen and Nitrogen that make up air, thus discharging it at 30,000 feet has a much greater impact. Rachel Dodds, Director of Sustaining Tourism and Associate Professor at Ryerson University, Canada suggests a 5 time impact multiplier, indicating that air travel contributes to around 10 to 15% of carbon dioxide based global warming effects. Rainforests and algae in the oceans are two main bio-systems that consume Carbon dioxide and give out oxygen. The destruction of the rain forests therefore removes the “lungs” of the earth and the land is then used for rearing cattle for human food. There are around 1.4 billion cattle today, about half of which are used for dairy production and half for human consumption, each animal creating huge quantities of methane and carbon dioxide. Methane is 23 times more potent in causing global warming than carbon dioxide is. Our modern excessive eating habit of meat thus greatly contributes to ill health and global warming gasses.

Water scarcity and excessive consumption are also a key environmental issue. An average individual in a western household uses 50 litres of water a day of which only 3 litres is needed for drinking. A hotel guest, on an average, consumes 500 litres of water a day. “Households use around 10%, industry around 15% and agriculture around 75% of water resources in the world”, says Anders Berntell, of the Swedish International Water Institute. Water consumption in agriculture is very high, because of wastage – Growing crops to feed beef cattle, which could be used directly by humans. Cattle are heavy consumers of water, and each kilogramme of beef mince requires around 30,000 litres of water according to Johnathon Buckley, University of Michigan. Growing inappropriate crops such as rice is another wastage. It requires 5,000 litres of water to yield 1kg of rice, great to grow in monsoon areas, not so great an idea in Australia!

So the clear picture is that our modern fast-living lifestyle is a major contributor to global warming. Therefore consumer awareness, interest, desire and action are a critical part of the solution to global warming. Citizens must choose their goals and define actions that are their personal governance role and commitment.

There are many things we can do at an individual governance and corporate governance level. Energy efficiency is a dramatic one. If USA became energy efficient in line with European best practices they could save around 30% of their energy bill. This would immediately mean that as a country they achieve the reductions in global warming gas as highlighted in the Kyoto Protocol. Simple energy savings initiatives include:

• Insulation of windows, doors, floors and ceilings in buildings
• Ensuring air-conditioning and environmental climate control set at a healthy 18 to 26 degrees temperature, matched to the external natural climate and season.
• Convert to modern fluorescent energy saving light bulbs;
• Adopt energy efficient home appliances and cars, engines
• Unplug unwanted appliances.

Who is the villain in all of this? Well, we are, The Consumers. Our defense is that we are not educated in the facts and in what we can do. Once we are aware, many of us will choose to behave differently as consumers, employers and managers of business operations. Citizens of the world are increasingly remembering that they are stewards of the earth, keeping the earth vibrant as a legacy for their children.

The weakest link has been our Governments. Al Gore tried to promote the Kyoto Protocol and environmental issues however this was one factor a few years ago that contributed to his political election failure. Global warming and environmental issues have a real cost. One that is currently not visible or borne throughout industry and certainly not passed on to the consumer. Many politicians just want to be elected and green issues appeal to environmentally aware voters, however there is a larger negative political impact of legislation that will drive consumer prices up.

In October 2003 The Pentagon published a report saying that global warming was now a national security concern. A Washington insiders’ poll in February 2007 found that 95% of Democrats and only 13% of Republicans agreed with the statement “it has been proven beyond reasonable doubt that the Earth is warming because of man-made problems”. Global warming skeptics have been promoted in the past by corporates like Exxon Mobile and newspapers like The Australian, The UK’s Daily Telegraph and Canadian’s National Post. At the Global level the United Nations has a huge role in nudging and prodding developed, developing and under-developed countries to be wiser and to adopt good environmental governance practices. Conversely there is need for political grass root developments. Seven Northeastern USA states have gotten together to form a regional greenhouse gas initiative. Such state level initiatives will apply pressure on federal government to support Kyoto. In the UK, the government commissioned a study called the Stern Review which led to the electorate sensitive prime minister, Tony Blair saying, “we accept we have to go further than the Kyoto protocol”.

Let’s leave the last words to the Governor of California, Arnold Schwarzenegger who supported an aggressive global warming emission reduction law and declared, “We simply must do everything we can in our power to slow down global warming before it is too late… The science is clear. The global warming debate is over.”

Paul A Zaman is the CEO of Qualvin Advisory and to know how to do a core business makeover for survival or going green email pzaman@qualvin.com www.qualvin.com.

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Whistle Blowing!

Corporate Governance – Whistle Blowing

Increasingly there is the need for a Director or employee to blow the whistle on suspected illegal activity and undesired ethical and moral conduct. Whistle blowing protection law exists in many countries. Paul Zaman discusses “ how do people react” and when is whistle blowing a rightful action.

Whistle-blowing – a. a person who informs on someone engaged in an illicit activity (Oxford Dictionary) b. (origins) Sir Robert Peel, “Peelers Or Bobbys” police force in 1829 issued with a truncheon and a whistle to summon help to apprehend a criminal c. (film) The Whistle Blower starring Micheal Cain, 1987.

Good corporate governance involves making great decisions and choices that create long term value for the shareholders, society and the environment and choices that you are pleased to live with. Increasingly this means that each Board of Directors must consult their ethical compass. Likewise, each individual in any choice they make in the life towards achieving their life goals must consult their ethical and moral compass and be able to sleep at nights with that choice.  Sometimes as an individual we become aware of a transgression of law of the land or a major conflict to your ethical and moral compass. This often results in a dilemma – staying true to your compass and what you know is right or compromising.

In business today, as a result of incredible telecommunication advancements such as the Internet, email and mobile phones, very few places of the world are not connected in seconds. This creates great opportunities and challenges. No longer can we hide behind the tyranny of time and space, and hope that out of sight means the issue goes away or that by the time it is known, you will be long gone or at least out of the firing line.

Therefore good governance today is about changing culture to reflect the higher levels of good corporate citizenship that many people across the Earth are expecting.

Whistle blowing has become very popular in recent years with Government agencies providing more than protection with actual payouts in cases of recovered fraud money.   If you wish to be a whistle-blower each time your morality is offended, you will never hold a job or a relationship. The moral and ethic aberration should be huge so know what sort of aberrations are out there so you can calibrate your own ethical and moral compass. Most of our affronts are not extreme and should be dealt with through normal complaint process. The majority of cases are low profile and receive no media attention.

Some people see whistleblowers as martyrs to the cause and others view them as glory seekers.

Although most countries have had laws protecting whistle blowers for many years, these were often a patchwork of law. Perhaps part of a new environmental law protecting employees whom reported environmental pollution breaches to a government agency or a law which enables government officials to report upon senior officials or government department mal-practice. In recent years arising from major whistle blowing events such as Frank Serpico the first USA police officer to testifying against fellow police officers on corruption; Sherron Watkins in Enron; Harry Templeton challenging Robert Maxwell in plundering the company pension fund, Dr Jiang Yanyong forcing Chinese government to reveal details about SARS. Andrew Wilkie, an Australia intelligence officer whom asserted in the run-up to the 2003 Gulf war that their internal reports do not support the claims of weapons of mass destruction. There is now a lot of protection for individuals to take action and be assured that there is some level of protection. The UK’s Public Interest Disclosure Act 1999 is internationally recognized as a benchmark in public interest whistle blowing.

The Board of Directors often creates a whistle blowing policy and passes it to internal audit for the role of running the whistle blower hot-line dealing with concerns.  Mr Idris Jala, the new managing director of Malaysia Airlines (MAS), announced in 2006 that it had drawn up a whistle-blower policy. The policy is aimed at creating a safe way for employees to register knowledge of fraud and other illicit acts. MAS’s policy and the Whistle-Blowers Independent Committee were a first for any Malaysian company.

Internal and external audit of a company’s financial accounts is also a form of legitimized and process driven whistle blowing. The audit purpose is to ensure many things, including integrity of the information and highlighting internal process and control weaknesses for correction before an event occurs. Therefore the need for whistle blowing only occurs when the internal processes and control mechanism do not work or are out of date or the values and culture of the company is out of touch with modern expected values and codes of conduct. Often, the Chairman, CEO or a responsible individual will say, when the disaster surfaces “ why did not anyone tell us”. Use the internal processes and ensure that decision makers are in the know.

Whistle blowing is also suited today to a campaign to change values and beliefs and make a huge difference to the world such as global warming, genetically modified items, renewable energy, abuse of labour in sweat shops, systemic pollution, protecting the ocean and the rainforest.

Whistle blowing dos include:

• keep calm, stand back and review the broader picture, issues and outcome before you act;
• remember you are a witness supporting informed decision making, not a antagonist and not a judge;
• and remember there may be an innocent or good explanation for the event and outcome witnessed;
• use help lines & hot lines, and join a co-ordinated group and campaign.

Whistle blower do nots:

• become a private detective or vigilante;
• use whistle blowing as a way of venting a personal grievance;
• bear in mind that the situation will be uncovered at some stage and then you will have to account for your in-action.

Paul A Zaman is the CEO of Qualvin Advisory, would you like to know how to create sustainable wealth and become a good corporate citizens  email: pzaman@qualvin.com or visit http://www.qualvin.com

Many ways to create lasting wealth!

Many ways to create lasting wealth!

Who else wants to make a positive social impact?

Who else wants to make a positive environmental impact?

Now you can feel good as the company you invest in, contributes and makes great profits!

Some of you may be feeling that these are mutually exclusive themes. I intuitively know that these are mutually inclusive.  Buckminster Fuller, the renowned social engineer talked and lived his life applying the universale laws of the universe, including the law of precession. The gyroscope and how it can balance on a needle’s point and seemingly defy gravity is the law of precession in action.  In the same way if we have you or your company with a code of honour focussed upon making a positive social and environmental impact. The energy of your motion and the energy of the universe work together. Which do you prefer, using your own energy to achieve a big goal or allowing the energy of the universe to work for you?

In late July 2008, people gathered in Kuala Lumpur, Malaysia to discuss Corporate Social Responsibility.  The distinction at this conference was the strong focus on investing for good returns finance rather than philanthropy, NGOs, activism and rhetoric.

The sustainable wealth of a company is going to be determined by how well social and environmental trends are captured as opportunities. Whether the company is small or big and private or publicly listed. That means allowing these trends  to drive goals, form strategies and direct actions.  Why would a person claim that?

The United Nations has sister initiatives to the familiar Millennium Development Goals (MDG), UN Global Compact www.unglobalcompact.org and the Global reporting Initiative (GRI).  A lesser-known initiative is the UN Principals for Responsible investors www.unpri.org, based in London.  Their research shows that there are over 180 Socially Responsible investment funds in Asia with US$34billion of assets under management.  James Gifford, Executive Director of UN-PRI shared the principles, which included: use environmental, ethical, social and governance issues in investment analysis, active equity ownership and encourage corporate disclosure.  UN-PRI has over 170 financial services sector sponsors and a mandate to promote the principles in the financial sector, corporate and governments.

The World Resource Institute www.wri.org based in Washington, researches social and environmental issues.  They have a Capital Markets Research arm.  They provide complimentary research to security houses like GoldmanSachs. The objective being to provide institutional investors with insights in how social, ethical and environmental trends affect the quality of future cash flows and hence valuations of listed companies. GoldmanSachs was reported as having 12 fulltime research analysts in London researching social and environmental issues and valuation impact analysis.

Social and environmental trends are drivers affecting sales, costs and risk to cash flow. Ms Hiranya Fernando, WRI demonstrated how these trends could be used sector-by-sector and even better at a specific company level to identify opportunities and threats.

Another two groups are the World Business Council for Sustainable Development www.wbcsd.org centred in Washington and the UNEP Finance Initiative www.unepfi.org for innovative financing for sustainability, based in Switzerland.  Talking with Cheryl Hicks a manager at WBCSD, she said they found that sustainability reports are not generally valuable for the investment community. Investors want to hear only sustainability performance material about the core business and in investor friendly language.  Investors also want to have a management discussion and analysis on core business issues on the same quarterly reporting basis as financials.  Which investors  had these views?  Goliath investors like Hermes, Calpers, Innovest, Allianz, Pictet and HSBC investments.

The overall perspective at the conference was optimistic and win-win. Social and environmental issues are opportunities not threats. They create innovation and new products and services. They create the tension for re-engineering the processes and substituting resources to ameliorate the issue and at the same time reduce costs.

The training given by myself, Paul Anthony Zaman, focused upon Qualvin Advisory’s research findings from CEOs of Singapore and Malaysian listed companies. The research findings show that the Board of Directors are aware of social and environmental issues.  Yet they had to deal with these as operational cost centre issues. They lack corporate goals and strategies that have social and environmental goals built in. They also therefore do not have a corporate wide investment decision-making framework and the necessary justification of achieving corporate goals.

Cheryl Hicks also suggests that, capital markets will fully reflect sustainability issues when a significant number of investors deem it financially relevant, and the information is fed to the investment community in a timely, consistent and meaningful manner.  Currently there is a lack of common templates and techniques for valuation analysis.

The content conclusion drawn is that an increasing number of long-term institutional investors are aware of and are using social, environment land governance analysis in their ongoing investment decisions.  Listed companies have yet to adapt to being able to make corporate wide investment decision-making.  Listed corporate are generally therefore unable to do quarterly reporting on social and environmental goals, strategies and investments.  These issues are operational and not yet corporate wide strategic issues.

The context conclusion drawn is that the universal law of precession is not fully being used in business. Corporates are focussed upon old-fashioned goals for financial and physical capital based upon the industrial era’s philosophy of a shortage of capital and resources. Corporate goals need to include managing capital of human resource, society and reputation.

Lets now bring this down to the individual level and the small enterprise.  Action you can take today.

• As an owner of a company let decision-making include social, environmental and governance issues.
• As an investor, choose your investments wisely and ensure they create social and environmental wealth.
• As an employee ensure that you approve of their social, environmental and governance policy and track record.
• As a consumer, be more sophisticated. Understand the social and environmental track record of the company you will support by buying their products.

Be wise, lever the energy of the universe to create wealth for you and leave a great legacy for your children.

Paul A Zaman is the CEO of Qualvin Advisory, we provide “smart support for busy executives” to Want to have help creating a Grey2Green2Gold action plan? then email: pzaman@qualvin.com. www.qualvin.com.

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