The Magic of Debt and Equity Finance

Paul A. Zaman shares insights on the importance of a company choosing the right capital structure to enhance shareholder value … the alchemy of debt and equity

One of the key ways for a company, small or big to improve long term shareholder value is by having the appropriate mix of debt and equity and making good investment choices. Even a seasoned executive director often misunderstands this aspect. Lets first explore the history of equity and debt.

The Dutch started joint stock companies, which let shareholders invest in business ventures and get a share of their profits. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. This was a massive investment aimed at building the biggest merchant fleet to break the monopoly the Portuguese held. At its peak the company paid a dividend of 40% and had 50,000 employees worldwide, trading from Europe, Peru, China, Japan and Batavia. In 1798, after 196 years it failed financially due to funding its army and fighting wars with other countries to protect its business franchise.   Other stock exchanges were set up after the Amsterdam exchange such as London in 1697, New York 1817, Bendigo in Australia 1860 and Bombay in India 1875, which is the oldest in Asia.

The history of debt, that is money lending goes back to Biblical times. The ascent of Christianity in Rome meant that interest was usury and so immoral. This created the opportunity for others to fill the space and become moneylenders. Ironically centuries later it was Pope John XII whom created the Italian–French banking system. There was a hierarchical order among banking professionals; those who did business with heads of state to fund palaces and wars, the city exchanges for business trade, and at the bottom were the pawnshops or “ Lombards”. Most European cities today have a Lombard street where the pawnshop was located. As merchant shipping grew in importance money lending was closely linked to the major trading ports of London, Amsterdam and Hamburg.  It was in coffee shops that the investment opportunities and loans were discussed and traded, such as Jonathon’s Coffee House and Edward Lloyd’s in London In 1698. John Castiang began publishing a twice-weekly newsletter of share and commodity prices, which he sold at Jonathan’s, and which led to the formation of the London Stock Exchange. Lloyd’s shipping list led to the establishment of the famous insurance company Lloyds of London.

Most of us have experienced a bank loan or mortgage. The lender provides cash, called the principle and receives an agreed interest return and an agreed date when the principal will be repaid in full. There is no upside on the return to the lender if the borrower uses the funds and makes good profits. However if the borrower does badly then the lender risks the return of the principle. A lender is risk averse and usually secures the loan against a tangible asset, like land and property so they only loose the principle principal loan amount if the asset turns out to be inferior and not worth as much as initially expected. Usually lenders get a majority of their investment money returned

A share investor invests by buying a company’s shares and so the company receives cash. A company in law is set-up to be eternal with an ongoing sustainable business. The investor does not therefore expect to get their investment returned unless the company decides to change its business or close down. The investor does expect to get a share of the profits each year as a dividend.  Investors can also sell their shares to other individuals at a gain or a loss. Selling at a higher price means that the new buyer expects to see further increased long-term shareholder value that is increasing dividends. The down side risk, is that if the company does badly it makes losses and all the investment may be lost. In a closedown situation the tax office, lenders, employees, and suppliers get paid first and if there were any money left over this would be distributed to the shareholders. Usually shareholders loose all their invested money.

Shareholders are owners and have a long-term commitment and wish to see the company do well.  Lenders wish to protect the money lent and monitor for the risk of default.

Shareholders have upside potential from ever increasing dividends and so also the ability to sell the shares at a higher price. Lenders have no upside potential.

Shareholders can lose all and often do. Lenders usually can recover their principle funds by grabbing and selling a tradable asset such as property.

Therefore due to the different risk-reward profiles, the cost to the company in terms of paying ongoing dividends to an investor is higher than the cost of paying the interest on debt and repaying the principle.

Lenders will assess the credit rating by the ability to pay the interest each period without defaulting on these payments. The minimum comfort level if to have enough cash income is to cover the payment of the interest three times over. Another factor is the quality and sustainability of the cash income. If the source of the income varies widely from period to period, there is more chance that in a low-income period the business or person may default. So a Company and a person with steady income can get better credit ratings then those with volatile and uncertain income.  How does a lender deal with this aspect? Simply they increase the interest rate payable so that on average across a portfolio of similar credit risk some default others pay. On average the portfolio of loans delivers the yield the lender wants.

Throughout the history of stock trading, the focus has been on dividend payments. It has only been in recent years a prolonged focus upon trading for capital gains. There have been some speculative periods, where investors focussed just on capital gains from shares that had the promise of delivering great wealth in the future. Such as the Compagnie du Mississippi and the South Sea Company, both merchant-shipping lines which traded on multiples of around 100 Price/sales and over a year the investment gain was ten fold. The crash of these companies triggered London, Paris and Amsterdam market collapses in September 1720.  More recently the stock market crash of October 24th 1929, known as Black Thursday was when the Dow Jones Industrial average dropped 50%.  It also was a global stock market effect. The succeeding-years saw the Dow Jones drop-a-total of over 85%. This event preceded the great depression.

Bringing this together with some everyday examples. Debt costs less than equity so depending upon the quality of income and level of income, the most wealth is created by having the right mix of debt and equity.  If you invest in property, a high quality house in a high quality area will yield stable rent and stable capital appreciation – you can afford and will be able to get higher gearing that is more debt. A low quality house in a low quality area is likely to have a volatile rent profile and large cyclic changes in its capital value – you may be unable to get much debt unless there is additional external income guarantees. For instance retail banks in Melbourne, Australia in the last few years changed their mortgage policy from lending 80% to only 60% of City centre property valuation to protect themselves from downside asset revaluation. For instance, traditionally the listed public utility companies such as telephone, electricity, water and gas generated steady income and offered steady high dividends and modest capital growth. Whereas a high technology company paid no dividend and instead offered the promise of fast increasing growth giving income in the future and future dividends. The privatisation and deregulation of the telecommunication sector meant that new players using new technology competed against utility telecommunication companies. The sector became overnight “high technology” which resulted in disastrous decisions. Many of these companies core business are once more behaving like utilities.

Returning to the executive director, one indicator of the long term health and wealth of a company can be seen by simply looking at the financial statement in the annual report of a company and seeing the trend in the return on equity and the return on assets. If it is around 9% or under and with a falling trend then the historic investment decisions made by the Board of Directors have and are continuing to destroy shareholder value. If the level is around 15% and increasing then the Board of Directors have made fantastic decisions, which create value.  These figures need to be adjusted to reflect of the company is more like a utility with stable business or a high technology growth company. A company’s share price will ebb and flow based upon market sentiment.  At some time the collective equity market intelligence will understand the performance of the Board of Directors, via their historic choices of the debt & equity mix and their choices of investment opportunities. The equity market will then reward or punish the share price. Good quality companies with good governance and proven business models often deliver the best long-term investment performance.

Check out more on services and training at http://www.qualvin.com

Entrepreneurial business, start young!

Corporate Social Responsibility – entrepreneurial business, start young!

Paul A. Zaman explores how triple bottom line reporting pays dividends for start-up and small business.

Some may be thinking that CSR reporting is only form multinational corporations and they would be wrong. A study in Canada of ten entrepreneurial businesses whom engaged in pro-active CSR reporting and strategy execution found that all grew strong and established themselves in the community. Start young and grow.

So how does an entrepreneurial company embrace and execute corporate social responsibility. There are two major global initiatives on CSR reporting, also known as triple bottom line reporting. The Global Reporting Initiative (GRI) sponsored by the United Nations and the Institute of Social and Ethical Accountability (AccountAbility) a not for profit institution set up in 1995. The GRI focuses on a process of identifying and reporting upon key relevant CSR issues. The GRI has a scheme for small business called High Five; AccountAbility focuses upon assurance, which means the process of reporting and the audit role. GRI has over 600 users and AccountABility over 300 users. Each is growing fast and is just the tip of the iceberg.  There are many more companies that use the guidelines yet do not formally submit reports back.

Dr. Anwar Ibrahim, the former Deputy Prime Minister of Malaysia was on 30th March 2006 appointed Honorary President of AccountAbility. AccountAbility says that Dr. Anwar is a prominent advocate for democracy, freedom, responsible business and the rule of law.

In my view, GRI has a focus on the financial, management and operational key performance indicators that make it easy for a business person to get great results. Whereas AccountAbility has a focus on auditing the process and dialogue with the stakeholders to verify the voracity of the data.  I like to stay focused upon creating shareholder value, which means the GRI five step process is a great starting point.

STEP 1: Get Board and Senior Management and owner sponsorship.

STEP 2: Using the business vision, objectives, strategies, activities and plan identify the stakeholders and map out the company relevant key interest areas.

STEP 3: Identify from the GRI the relevant type and nature of indicators to report upon that match to the key interest areas. Collect and collate historic data on these areas and candidate indicators. Identify the historic relevant management activities in these areas and determine what enhance and new activities could be done.

STEP 4: Verify data quality, with internal and external stakeholders. Engage in dialogue with key external NGO whom are respected surrogate representative of the external stakeholders. Set targets, management activities and accountabilities for the forward-looking years of the CSR. Write, finalise and distribute the first CSR report.

STEP 5: Collect feedback from the CSR report in areas of improvement in CSR performance. Plan the next steps of the CSR strategy and execution. Get recognition from management, staff, suppliers, and customers for the CSR awareness and commitment.

Developing a corporate sustainability report is like most business wide projects requires the support and commitment of top management and in a small business the entrepreneur owner and founder. Much of the information will already be in the company it just will be in different areas awaiting collation. Companies as small as five employees have created CSR reports.

An initial step is setting the context and significance of CSR reporting for the company. There must be real benefits in reporting such as enhanced reputation. increased profit, improved access to capital, improved access to information, new market opportunities, improved relationships and increased staff motivation. Reviewing CSR reports on other companies available at GRI or via sustainability reports on corporate web sites, in your industry and peers will help. This will help identify what are the major environmental sustainability and integrity issues and the social welfare and human rights issues affecting your industry sector and specific to your company. These are then listed, profiled and ranked for importance.

Like an annual report and financial statement there are a few guiding principles on what to report such as: materiality, comprehensiveness, inclusiveness and transparency. The quality and reliability of reporting is based upon reproducibility and accuracy. The CSR report is intended for senior management to make informed decisions about how to improve the CSR report, the economic benefit, strategy and execution plans. The CSR reporting must therefore also be timely and relevant for management action. Lastly, the process for data gathering should be auditable to demonstrate that the underlying information and report is fair and true.

One of the initial dilemmas is identifying whom your company’s key stakeholders are. Candidates include employees, family, community leaders, owners and equity investors, banks, financial analysts, suppliers, customers, end users, NGOs, labour associations, licensing bodies and environmental inspectors.  Once established map the key CSR issue areas to each stakeholder and rank the level of  stakeholder’s interest.

The next stage is dialogue with a representative set of stakeholders to verify their level of interest and understand their expectations for your business. This could be by a town hall meeting, one on one meeting or even an email questionnaire. With this feedback you can gauge if you are satisfying the key stakeholders interests.

The CSR report areas can now be formulated along three themes. The economic theme impacts typically affects customers, suppliers, employees and owners. The Environmental theme impacts typically on materials, energy, water, pollution, compliance, transportation, and your products and services. The social theme relates to labour practices and conditions, human rights, community at large, product responsibility.

The next step is to start collecting the core performance indicators. Again the GRI, AccountAbility and peer CSR reports will guide you into the selection. It is key to select the core indicators relevant to your business and your CSR areas of interest. Formal sources of information are the financial accounts, utility bills on water, electricity and waste quantity, staff turnover and sick leave.

The focus is on setting CSR objectives, strategies and action for improvement. In doing this like all planning iteration and consultation is required.

To capture the economic benefits the CSR initiative the results need to be published and disseminated. For small business this could be via notice boards, web page, newsletters, meetings, press releases, presentations, industry conferences. The communication method should be matched to the stakeholder groups identified to ensure you get your company’s message out there. Naturally the senior management needs to do a final review before distribution of the CSR report.

What small companies, 5 to 100 employees have done CSR reporting? All types such as advisory services like consulting, training and financial planning; business services like printers and waste management; hospitality, food and beverage outlets. Plus many large multinationals in every sector including Sony, Canon, Microsoft, McDonalds, Telstra, Heineken, Hewlett Packard, Lend Lease, Phillips, TNT, Westpac

Another benefit of the CSR Report is making corporate social initiatives more meaningful. Corporate social initiatives differ from corporate philanthropy in that it is aligned with the company’s vision and the CSR strategic issues. This means your company’s social sponsorship affects the key community stakeholders that your company is involved with and they recognize the power of your intention and commitment.

The CSR Report is a critical window on management’s claim of being socially responsible. It means that corporate sponsorship makes sense to all that witness it and becomes justifiable and sensible to owners and beneficiaries.

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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Social artistry, unleashing the power of your archetypes!

Social artistry, unleashing the power of your archetypes!

Dr. Jean Houston is a scholar, philosopher and researcher in human capacities.  She is long regarded as one of the principal founders of the Human Potential Movement.  To me, Jean Houston, is a luminaire of solar brilliance. She is a mentor of the contemporary leaders for our society.  The leaders the world needs today to bring us into living our glorious future.  This new style of leadership and living she describes as social artistry.  They care about prosperity, society and the environment.

In Los Angeles, in June 2008, I was fortunate enough, due to stepping up and taking action, to be at the Humanitarian Unite Brilliance conference called Igniting your Brilliance.  With around 500 like-minded and hearted people, focussed upon stepping up and making a difference the event was electric.  Ask yourself this question – Where were you?

Humanity Unites Brilliance is a new social enterprise designed to have a major social and environmental impact whilst being sustainable by having a profitable business engine to create income.

Research shows that many people are disappointed with traditional charities due to factors such as the lack of accountability, transparency and inefficiency. Emergency relief is always critical and fortunately always widely and quickly supported. However other charity themes are focussed upon giving aid rather than teaching someone how to fish and regain their dignity and responsibility for their own life. Charities also spend money and time competing with each other for funds rather than their vocation of providing assistance.

Humanity Unites Brilliance is a social enterprise. It generates its own income, distributes 40% of subscription income to grass root causes, and provide transparency, connection and accountability for money spent.  Its income is generated from self-development programmes and live trainings, such as Igniting your Brilliance. XL Results Foundation was a founding sponsor of Humanity Unites Brilliance in 2007.

Jean Houston is a young lady of 70 and yet her energy and presence is that of some half that age. She has a very interesting background.  She was taught by Buckminster Fuller, worked with Joseph Campbell and had as a frequent house guest Margaret Mead. Buckminster Fuller and Margaret Mead are perhaps two of the greatest thinkers of the 20th Century.  With these mentors it is of little surprise that Jean Houston is an incredible transformational mentor in her own awesome capacity.

Buckminster Fuller was a recognised author, architect, designer and futurist. He was keenly interested in sustainability and believed human societies would soon rely mainly on renewable sources of energy, including solar and wind.  He taught that competing for scarce resources, which drove the industrial revolution, must give way to co-operation.  He explored principles of energy and material efficiency in his specialist fields of architecture, engineering and design and coined the phrase “Spaceship earth” and invented the geodesic domes.

Jean works the stage with a friend Peggy. I say works, because both Jean and Peggy are thespians, lovers and actors of the stage and also the theatre of life. The wonderful pleasure of experiencing Jean and Peggy present Shakespeare and dramatic prose live and impromptu on stage is unimaginable. Jean and Peggy are epic performers. Why is this important? Simply because they use their artistic talents to lead and pace us through archetypal stories that dissolve our limiting values and beliefs in moments of theatrical time.  Even more powerful than the dissolution of your un-serving memes, virus of the mind, is that the archetypal stories resonant with your ancient reptilian brain and unleashes new capabilities in you. These are the capabilities of social artistry.  No wonder that Jean Houston has held a mandate from the UNDP, since 1994, to train thousands of social artistry leaders world-around.

Jean Houston also asserts that the chunking down of language into sound bites means that the rich language of our forebears has been denatured. The tonal and vocal quality has disappeared. This speech quality conveyed the emotional content and it triggered our emotional brains, the ancient reptilian brain into action. Our ability to sense and feel connections to each other, ideas and our environment has disappeared. We are lost and disconnected more than we have ever been and our ability to take wise mindful action has also been diminished. There is a real dramatic need, survival of the homo sapiens species, that depends on the reinstatement of poetic and dramatic language to convey messages more fully.

Some of the social artistry capabilities are: the ability to connect people and ideas together effortless and spontaneously; the ability to listen and hear the full rich and deeper meanings of what is said and unsaid; the ability to dig deep inside of yourself and facilitate the same in others to unearth talents, truth and motivation. This style of leadership is about being connected to people and the planet and about moving beyond narrow self centred agendas to serve the global agenda; it is about knowing when to step up and take mindful action.

Ask yourself this question – Where were you?

Find out about HUB at http://paulanthony.hubhub.org/ .

Paul A Zaman is the CEO of Qualvin Advisory. What to know more. Embarrassed by your limp share performance, wake up to the maestro IR share system, and get firm shares and a corporate reputation that investors, customers and suppliers want. Email: pzaman@qualvin.com. www.qualvin.com.

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Sustainability the view from the top!

Sustainability the view from the top !

Recently, we got around twenty senior executives of listed companies in S.E.Asia to give us their views on sustainability and corporate social responsibility. The senior executives were Executive Directors, CEOs and CFOs of both small market capitalisation, that is under US$300m and large market capitalised companies over US$300m.  The insights into sustainability are surprising. We get a powerful inside view on their thinking and the challenges facing them and their corporations.  Individuals often blame corporations for woes of the world, this shows that reality is different. A key component for improving our world is to have more sophisticated citizens and consumers, particularly in the west.

A definition of Sustainability and Corporate Social Responsibility was deliberately not prescribed for the senior executives.  It is a new concept and it means different things to different people. We consider sustainability to be a useful umbrella term, with corporate good citizenship, corporate social and environmental responsibility and triple bottom line planing and reporting – all being under that term.

Surprisingly around two-thirds of the senior executives informed us that their investors knew about and were interested in their sustainability performance.  Also the companies’ Board of Directors saw a link between sustainability performance and share performance.  These findings are remarkable because it means that the Board of Directors and the senior executives of those companies have sustainability as an important topic on their agenda.  Awareness and motivation in sustainability is therefore high.  The number of companies that have processes for planning, monitoring and reporting sustainability is much smaller.  Therefore there is a disconnect between intention and actual execution.

Investors and smart Directors know that the value of a business is created by good corporate governance focussed upon setting smart goals, well-formed strategies to achieve those goals and a monitoring and reporting system. Another aspect of good governance is in managing risks that could upset the strategy and achieving the goals. The long-term equity market value of a business is based upon the expectation by investors of the Board of Directors and management team actually delivering the promised business value in the future.

Long-term investors therefore are keenly interested in the performance of the ongoing business. Today social, environmental, ethical and political issues influence the risk profile of every company, big or small, private or public listed. The companies goals and strategies for prosperity-people-planet are important.

Around two-thirds of senior executives reported that sustainability issues were used to inform the strategy formulation and the business planning so the issues are being surfaced and used.  They intuitively know that sustainability is important and try to act upon it.

The problem facing the senior executives is the lack of investment justification, that is the lack of robust quantitative information for decision-support and ultimately decision-making.  When we asked senior executives if they received robust justifications for investment in sustainability only around one third said yes.  Therefore there is a lack of capability in creating the justification for the corporate sustainability plan and also individual projects.  This is reflected in the major business schools of the world are now running MBA programmes in sustainability and CSR.  They are also undertaking research into new management tools and techniques.  There are several prestigious Sustainability and CSR related MBA competitions.

We also asked the senior executives if they got quality intelligence from key external stakeholders on sustainability issues. CSR reporting has been focussed upon stakeholder engagement triggered by issues and activists, this occurs when social capital is under attack.  The key stakeholders for reputation capital and corporate decision-making are customers, suppliers, investors and government regulatory bodies.  These all have contractual agreements with a business and if any one of these relationships is eroded it has an adverse effect on the business.  Therefore by considering the effect of these key stakeholder relationships on the business will provide senior executives a robust way of justifying at the board level and with equity investors, massive expenditure on sustainability.

Essentially if social and reputation capitals are eroded then it translates to worse business risk, inferior operational performance and lower earnings.  For example if customers find out that the company does not walk-the-talk on its social and environmental marketing statement the customers can quickly move from being loyal advocates to activists. If a company is found to be lying and dishonest, the social and reputation capital can be destroyed resulting in greatly weakened relationships with customers, suppliers, investors and government licensing bodies.

Corporate brand equity and product brand equity is built with a good corporate communications programme and celebrity sponsorship, it is as good as your current market campaign.

Social and reputation capital is built over years of actual engagement with stakeholders and it can leave a physical footprint.  A huge positive contribution is when a company supports volunteering and social projects.  The Timberland company is a great example. Timberland has a mission  ‘to equip people to make a difference in their world.  to make it better’ and have expansive projects in environmental stewardship and community engagement.  Social and reputation capital like this can be analysed and used as the basis for senior executive investment decision-making.

An interesting finding from the senior executives was that smaller market capitalised companies actually had better results than large.  We think that small companies have senior executives who are hands-on and are in touch with customers, suppliers and government agencies. They are more connected with the real stakeholders and so more able to understand the issues and build social and reputation capital.  Large corporations have professionals in head office with little connection to these stakeholders.

The biggest leverage point towards sustainability of prosperity-planet-people is the company-customer relationship. If customers become more sophisticated, that is demanding to understand the holistic life cycle impacts of the products they consume, then they also provide powerful feedback to the firm. This intelligence can be used by senior executives to make better decisions. The lack of sophistication, particularly of western consumers, means that corporates get the message that low price, low cost products which may have unhealthy footprints for individuals and society are preferred and in demand.

Paul A Zaman is the CEO of Qualvin Advisory, we provide “smart support for busy executives” to listed and unlisted companies. Wanting to know how to vision and action a core going grey2green2gold plan?  then email: pzaman@qualvin.com. www.qualvin.com.

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