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Travis Engen, President and Chief Executive Officer, Alcan Inc.

Samuel A. DiPiazza, Jr., Global Chief Executive Officer, PricewaterhouseCoopers

Editor's note: Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today. If you'd like to participate in this section in the future, please email Scott Chase.

This month, WBCSD Director Margaret Flaherty answers questions about a new report, "Beyond Reporting," spearheaded by Travis Engen, president and chief executive officer, Alcan, and Samuel DiPiazza, global chief executive officer, PricewaterhouseCoopers, that sheds strategic light on this timely topic.

How are companies moving beyond reporting and finding business value from accountability and transparency?

The crisis in trust facing global companies calls for business to live up to higher levels of responsibility and accountability. These calls, in turn, have been met by a proliferation of legislation and voluntary guidelines. The sheer volume of requirements such as Sarbanes-Oxley in the United States and the European Union’s Transparency Directive, as well as voluntary guidelines such as the Global Reporting Initiative and even ISO, can be daunting for companies.

Are these tools, guidelines, or laws enough to inspire increased confidence among stakeholders, including employees, shareholders, customers, local communities and regulators?

The problem is that to date many of these mechanisms have not delivered the desired trust, so why would new ones deliver any more – let alone enhanced – business value? The World Business Council for Sustainable Development (WBCSD) recognized these market dynamics and launched a detailed study that provides insights into these dilemmas and argues that companies need to revisit the framework for accountability to understand why it is failing in order to change direction and create the trust they so sorely need.

For many companies, demonstrating commitment to accountability and transparency by subscribing to voluntary standards and guidelines has become a standard part of doing business. Yet, the findings of this WBCSD report highlight how these efforts can be leveraged even further to put companies ahead in the trust stakes and create new opportunities for business value.   “Beyond Reporting: Creating Business Value and Accountability,” concludes a two-year inquiry, championed by Travis Engen, president and chief executive officer, Alcan, and Samuel DiPiazza, global chief executive officer, PricewaterhouseCoopers, into this topic. “Beyond Reporting” suggests that the way through the “forest” without getting lost in the “trees” is to focus on the issue of trust:

-    Who is accountable?
-    For what?
-    To whom?
-    Though what mechanisms?
-    And with what result?

As companies tangle with these questions, there is increasing evidence that successful companies are beginning to integrate the mechanisms of accountability, sustainability, and corporate governance (such as voluntary codes and guidelines) into their core business strategy and making the links to commercial value.

What are some of the outcomes and benefits of this integration?

Companies included in the research for “Beyond Reporting” believe such linkages and benefits include better risk management, lower cost of capital, and improved staff retention. In other words, accountability adds value to the enterprise.

“Beyond Reporting” examines how companies can move beyond compilation and compliance and toward a ‘new accountability,’ embedded in their corporate strategies, that creates business value. The report is based on input of 60 companies, and identifies a new mindset to help companies move beyond seeing increased accountability as an added cost or as little more than a worthy sideshow to running their businesses.   The report suggests that to derive commercial value from a more accountable way of doing business, companies should:

1. Understand what drives value in your business
Commercial performance is the responsibility of all functions. It cannot be achieved without strategic connection between functions. Accountability should be viewed in the same manner. By bringing together sustainable development and other functions, companies can generate better market information and transform what would otherwise be seen as a back-office compliance burden into value-creating opportunity.

2. Recognize that different people are accountable for different things
The spheres of influence model in Chapter 2 illustrates the range of pressures that companies face. But clearly the reality is far from linear – these influences are exerted in different ways on business functions, and even where expectations are aligned, a function’s ability to respond differs. This also means that business functions can use the interactions of each sphere of influence to build value in different ways.

3. Connect the functions that propel the value drivers
According to the responses of the 60 WBCSD member companies involved with this project, the reality is that accountability has conventionally been treated in piecemeal fashion and cross-functional connections are relatively rare. The same can be said of the way in which companies have addressed non-financial issues and the demands of a broader set of stakeholders.

4. Build on the effort that is going into straightforward compliance
Companies acknowledge that excessive focus on the legalistic dimensions of accountability has potential to restrict rather than promote creative thinking. It can detract from the aspects of accountability that are delivered through strategy, corporate culture and managerial behaviour.

Integrating principles of sustainable development into general business accountability structures opens up new business opportunities and helps companies create value, not just avoid destroying it. And companies can help heal the trust wound by speaking out on the social issues that matter most to their businesses. Mounting evidence indicates the value of getting accountability right. Analysis by research firms such as Innovest shows that companies who understand and act on their responsibility to society achieve better shareholder returns.

Unfortunately, many companies, though comfortable with some level of accountability, focus on a narrow set of audiences, and fail to translate their insights into opportunities. Worse, others do not leverage the millions of dollars they spend to meet new governance requirements like Sarbanes-Oxley to add value to their businesses. Herein lies the real business opportunity.

Better accountability is also about leadership. Companies participating in the WBCSD report agree that effective communication by leadership helps the rest of the business start thinking about how they deliver contribute to achieving the strategy.

Finding business value in accountability demands a shift in thinking, to push an organization past its metaphorical "tipping point" so that enough people understand its link to new business opportunities. Companies that infuse accountability into their business strategy find they are better able to connect their people to value creation.

Margaret Flaherty is the director of the World Business Council for Sustainable Development (WBCSD), a coalition of 175 international companies united by a shared commitment to sustainable development via the three pillars of economic growth, ecological balance, and social progress.

WBCSD’s members are drawn from more than 35 countries and 20 major industrial sectors. It also has a global network of 50 national and regional business councils and partner organizations involving some 1,000 business leaders globally.
The WBCSD's activities reflect the shared belief that the pursuit of sustainable development is good for business and business is good for sustainable development.

Travis Engen is president and chief executive officer of Alcan Inc., a $25 billion organization headquartered in Montreal, Canada. He assumed this position on March 12, 2001. He has served on the Board of Alcan since 1996 and previous to becoming Alcan’s CEO he was CEO of ITT Corporation.

Samuel A. DiPiazza, Jr., is the global chief executive officer of PricewaterhouseCoopers and has held this position since January 1, 2002. He most recently served as chairman and senior partner of the PricewaterhouseCoopers US Firm. PWC is present in 144 countries with annual revenues of over $16 billion.

Copies of "Beyond Reporting" may be obtained from Earthprint: Tel: (44 1438) 748 111, Fax: (44 1438) 748 844, E-mail: wbcsd@earthprint.com. The report can also be downloaded from the WBCSD website at www.wbcsd.org. Hard copies of the report will be delivered to all Directors & Boards subscribers with the journal’s fourth quarter 2005 edition next month.